Internet service is an essential staple of everyday life, with over 80 percent of Americans able to access the web at home and work and nearly 60 percent carrying smartphones with mobile broadband service. Smart government policies forbidding Internet service from being taxed have helped make broadband available and affordable for Americans of all ages and incomes, but a critical piece of federal legislation, the Internet Tax Freedom Act, is set to expire in November.
Fortunately, the House and Senate are both working on bills that would make restrictions on Internet taxes permanent. The House Judiciary Committee marked up HR 3086, the Permanent Internet Tax Freedom Act, last week, and the companion Senate legislation (S 1431, the Internet Tax Freedom Forever Act) has the support of the majority of the upper chamber.
ITFA, a bipartisan bill signed by President Clinton in 1998 and extended by President Bush in 2007, prohibits states and localities from taxing Internet service. The law also bans a variety of sneaky taxes on bandwidth, email, and other web-only technologies that governments had used as an end-around to tax Internet users. ITFA was a major factor in the rapid proliferation of Internet access in America in the early 2000s, as it eliminated many of the financial barriers between consumers and Internet service.
Because Internet service has not been subjected to a cavalcade of state taxes and fees, the U.S. has often ranked ahead of other prosperous nations with fewer natural barriers to connectivity in global Internet access rankings.
For example, the U.S. ranks 6th in wireless broadband penetration despite having vast swaths of difficult-to-connect rural territory and a large first generation immigrant population. ITFA has allowed American wireless providers to invest in these difficult-to-reach communities with lower overhead costs and achieve a mobile broadband penetration rate of 89 percent — about twice that of France and Germany, nations without such significant geographic and cultural barriers to web access.
This overachievement in connectivity could quickly be reversed, however, if IFTA is allowed to expire. Studies have found that Internet taxes could reverse the gains in rural and low-income web access made by the massive investments government and the private sector have made in connecting these communities, and that the U.S. could lose 30 million mobile broadband customers if the tax moratorium expires. That figure represents 30 million individuals and businesses who would be priced out of an increasingly essential service, hampering our ability to connect with and learn from one another, and making it more difficult for small businesses to compete.
New Internet taxes would also regressively target those who can least afford to pay, and do so surreptitiously, by adding hidden fees to their monthly Internet bills. Because nearly everyone uses the Internet, low-income families would be subjected to the exact same taxes as wealthier taxpayers, putting a proportionately larger strain on their budgets and making them more likely to cut back on service — despite studies showing that children who have Internet access at home are more likely to succeed in school. The tax would also be tacked on to the bottom of utility bills, making it less visible and shielding state legislators from the scrutiny they should receive for hiking taxes.
The U.S. has made broadband access a national priority for the past two decades, and we’ve been rewarded for it with strong growth in the technology sector. This isn’t the time to undo this progress by putting hurdles in the way of the strongest-performing sector of our economy and forcing rural and low-income Internet users back into the 1980’s by pricing them out of the broadband market. Congress needs to stand up for Internet access and extend the common-sense policies we have in place.
Erik Telford is senior vice president of the Franklin Center for Government & Public Integrity.