Press Releases

Carper Criticizes McCain-Allen Internet Tax Proposal

Senator Instead Supports Two-year Extension That Would “Do No Harm” To States

Apr 27 2004

WASHINGTON, D.C. (April 27, 2004) – Sen. Tom Carper, D-Del., today criticized an Internet tax proposal put forward by Sen. John McCain, R-Ariz., saying it would continue to erode the tax base of states, while failing to address concerns that traditional telephone service delivered over the Internet would no longer be subjected to taxation. Carper, who has introduced legislation [S. 2084] with Sen. Lamar Alexander, R-Tenn., to extend the Internet tax moratorium for two years, said the McCain proposal would harm states by enshrining into law the broad and vague definition of Internet access contained in the bill [S. 150] sponsored by Sens. George Allen, R-Va., and Ron Wyden, R-Ore. That bill is currently being debated on the Senate floor. In recent days, McCain, with Allen’s endorsement, has floated his own version of the Allen-Wyden bill, but Carper said that proposal doesn’t represent a compromise and still has significant problems. For one, the proposal contains the definition of S. 150, which would exempt from taxation a host of business-to-business transactions and phone services that are currently taxed by states. Carper said the definition would be a huge windfall for the telecommunications companies, but as the Congressional Budget Office has said, it would result in “substantial revenue losses for states and local governments.” While the ban is no longer permanent, as proposed by Allen-Wyden, and would instead last four years, Carper nevertheless said that states would be hurt by the proposal. The McCain legislation would grandfather certain states that collect Internet access taxes, but not for the complete four-year period, meaning many states would still face substantial revenue losses. Moreover, although McCain has said his proposal would correct a flaw in the Allen-Wyden bill that could potentially exempt telephone services delivered over the Internet from taxation, Carper said the McCain proposal remains vague and confusing. “Our guiding principle in this debate must be to ensure that we don’t harm states and threaten the services they provide, like schools, police and hospitals,” said Carper. “The McCain proposal continues to extend the Internet tax moratorium by attaching to it billions of dollars in new subsidies for the telecommunications industry at the expense of state and local governments.” Carper, Alexander and other senators have proposed the Internet Tax Ban Extension and Improvement Act [S. 2084] that would extend for two years the recently expired law barring state and local taxes on Internet access. The legislation preserves the intent of the original 1998 moratorium by ensuring that only Internet access – the transmission between the Internet Services Provider (ISP) and a consumer or business— is tax-free. ENCLOSURE: ALEXANDER-CARPER LEGISLATION TO EXTEND THE INTERNET ACCESS TAX MORATORIUM FOR TWO YEARS The legislation, the Internet Tax Ban Extension and Improvement Act [S. 2084], would extend current law – barring state and local taxes on Internet access – for two years. The amendment ensures a level playing field among competing technologies, including, dialup, cable modem and broadband connections. It is a sensible way to protect consumers and promote Internet development WITHOUT burdening states through unforeseen and unknowable revenue losses. It supports the Internet, the future, consumers and state and local governments ALL AT THE SAME TIME. • The legislation protects consumers by keeping the Internet tax-free for two additional years. Extending the existing moratorium for another two years keeps basic Internet access tax-free, which was the purpose of the original 1998 law, the Internet Tax Freedom Act. No one will be able to tax email or surfing the Web, nor will states lose the bulk of their existing telecommunications revenues. • The legislation ensures a “level playing field” among competing Internet access technologies. The legislation would make sure that all transmission lines connecting consumers and businesses to the Internet remain tax-free – the primary concern raised by the telecommunications industry. This ensures that Digital Subscriber Line (DSL) Internet access is treated the same as cable modem access. • The legislation prevents Congress from passing a huge tax giveaway to telecommunications companies and big business. Competing legislation [S. 150], offered by Sens. Allen and Wyden, would grant a permanent extension of the Internet access tax moratorium in ways that are not fully understood. Over the next several years, many telecom services will be migrating to the Internet. S. 150 enshrines a confusing and controversial definition of Internet access that could exempt from taxation phone services, music and movie downloads and a host of emerging technologies. Such legislation would be a boon to giant telecommunications companies because it would grant them a new competitive advantage they could market to consumers. But it would have a disastrous impact on state budgeting. • The legislation provides revenue certainty for states and local governments and prevents new tax increases at the local level. CBO has said S. 150 could result in "substantial revenue losses for states and local governments" but because the definition of Internet access in S. 150 is so unclear, it "cannot estimate the magnitude of these losses." States could stand lose billions of dollars, according to the National Governors Association and the Multi-State Tax Commissioners. States this year faced a shortfall of $78 billion. Since states must balance their budgets, they had to make a simple choice – tax increases or spending cuts. Already, health care, childcare and education have seen the budget axe. If states were to lose more revenue, they would be forced to raise taxes, stifling economic growth. The Alexander-Carper bill makes sure that revenues remain unharmed for the next two years and that local taxpayers won't be seeing a spike in property and income taxes. • The Alexander-Carper bill has the support of most state and local groups. The National Governors Association, National League of Cities, U.S. Conference of Mayors and the National Association of Counties support the legislation. In a telling move, the National Conference of State Legislatures in January rescinded their support of the Allen-Wyden bill. According to a spokesman, the group said "they don't know what [Allen-Wyden] means, so they don’t want to endorse it. [Tech Daily, 1/21] The Alexander-Carper bill also ensures a level playing field among competing technologies, expanding the tax ban so that all modes of Internet access – including dialup, cable modem and broadband connections such as DSL – remain tax-free.