Internet, Email Taxes Could Become Reality if Lawmakers Fail to Act | Commentary

Posted December 9, 2014 at 6:11pm

If certain members of Congress and President Barack Obama have their way, 2014 may very well be remembered as the year we started taxing the Internet. The good news is that the passage of Internet sales tax legislation appears unlikely — at least for the moment. The bad news is there are still two far reaching and potentially expensive measures under consideration that pose a serious threat to the Internet as Americans now know it.

Americans may not be aware, but if this lame-duck Congress fails to take action, the door to Internet taxes will be flung wide open. Extending the current, (and soon to expire), moratorium on taxing Internet access, among other things, is one of the many items that the lame-duck Congress has yet to consider. And that’s something every American should be concerned about, because the extension of the moratorium on Internet taxes is critical to expanding Internet access and keeping Internet costs down for consumers.

The expiring Internet tax moratorium is the more immediate threat to hardworking Americans as Congress only temporarily extended it until Dec. 11 via a stopgap measure approved in September. If this longstanding moratorium is not extended, new barriers to Internet access will be created, ultimately hindering broadband adoption and making it more difficult for those who already struggle — namely the poor — to obtain access to the Web.

If the Internet tax moratorium expires, state and local governments will have the authority to tax the Internet in their respective areas based on a variety of factors. Besides Internet access itself, politicians would also have the ability to tax data consumption. This means consumers could be taxed for anything from the number of emails they send and receive to the number of songs they download or even how much time they spend watching Netflix or Youtube. This is especially concerning given how critical being connected has become in the new global economy.

A study conducted by American Action Forum offers insight into the reality of what taxing Internet access could mean for hardworking Americans. While tax rates will vary by state, allowing the Internet tax moratorium to expire could cost consumers an estimated $14.7 billion overall — with $10 billion of that being shouldered by individuals and the remaining amount by businesses. This is alarming news for broadband consumers, and once again especially concerning for the most-vulnerable Americans, who already struggle to obtain and maintain broadband connections.

The second threat to Internet freedom comes in the form of Obama’s controversial so-called “net neutrality” regulations, and his effort to reclassify broadband as a utility. This proposal will be up for final consideration and approval early next year.

Despite its innocuous sounding name, “net neutrality” would fundamentally change the way Americans are able to use the Internet, and not in a good way. That’s because Obama’s rules are based on antiquated telegraph and telephone laws from the early 1900s and would grant unprecedented government control over the digital frontier.

It’s important to note that this law is almost a carbon copy of the Interstate Commerce Act of 1887 — a law meant to regulate 19th century railroad companies — only with modified language to apply to telegraphs and telephones. With 2015 just around the corner, it’s hard to believe that policymakers seem to think that century-old railroad and telegraph statutes are anywhere near appropriate for regulating our rapidly changing digital world.

While reclassification would grant more stringent and expansive government control over the Internet, it would also mean less money in American broadband consumers’ pockets and more in Uncle Sam’s. Title II reclassification would cause what could arguably be the largest one-time tax increase on the Internet by subjecting broadband to Universal Service Fund fees.

The USF fee is levied on all interstate and international telecommunications revenues and was recently increased to 16.1 percent. Since the USF fees collected are based on revenues, a hefty amount of money will be collected — an estimated $24 billion — if broadband is reclassified and will be used to subsidize over-funded Federal Communications Commission initiatives.

While this may not seem like much to politicians such as Obama, Americans across the country will feel the burn in their annual budgets. Additional fees for wireline broadband services would cost consumer households close to $100 a year, while wireless services would cost about $137 per smartphone — especially daunting for the many American families with multiple smartphones on their wireless plans.

The Internet has experienced unfettered growth because the government has taken a largely hands-off regulatory approach while avoiding levying taxes. This lame-duck Congress has the opportunity to do what is right for American broadband consumers — keep the Internet tax free. The best option is a permanent extension of the Internet tax moratorium, but it would be a greater disservice to their constituents if Congress fails to pass a temporary extension at the very least.

As next year approaches, Congress must keep a watchful eye on the FCC and prevent any form of broadband reclassification under Title II. Failure to do so will result in a crushing tax on broadband consumers and fundamentally change the Internet America loves.

Kuper Jones is a policy analyst with Americans for Prosperity.