Internet outgrows need for protection: Our view
In 1998, Congress decided it needed to protect a promising but fledgling industry. So it barred cities, states and the federal government from taxing Internet service.
If such a move made sense then, it certainly doesn't now that the Internet permeates daily life, and Congress would do well to let the tax ban expire on its current sunset date of Dec. 11.
Yes, this means the monthly bill from your Internet service provider (ISP) could go up, if your local or state government chooses to tack on a tax. That's an unappealing prospect, but not a reason to keep the ban in place. Here's why.
Internet service, generally provided by companies such as Comcast and Verizon, is one of the least competitive and innovative parts of the digital economy. It doesn't need or deserve any special protection.
The ban puts a burden on states — all but seven of them, that is, which were collecting a tax before 1998 and are therefore grandfathered. The other 43 are missing out on $6.5 billion in annual revenue, money they could use to modernize schools, expand broadband access or reduce other taxes.
Supporters of the tax ban assert that lifting it would discourage Internet use. To see how vapid this argument is, look no farther than Texas, one of the grandfathered states. Texas collects $270 million a year in Internet service taxes, yet its capital of Austin is a thriving high-tech hub.
To be sure, a number of states tax too much to fund bloated bureaucracies and overly generous benefits for public workers. But singling out a single product or service for a tax break is not the solution. This approach merely complicates tax codes and shifts more of a burden to other, less healthy industries.
Nor does the ban on ISP taxes force governments to spend less. Without the ability to tax Internet service, states and localities merely hike other forms of taxes — such as those on cellphone service — to make up for the lost revenue.
When first passed, Congress made the ISP tax ban temporary, perhaps realizing that it would soon outlive its usefulness. But as if to underscore how almost nothing in Congress is ever temporary, particularly if powerful corporate interests support it, the ban has been repeatedly extended. And now a group of House Republicans wants to make the ban permanent.
The prohibition on ISP taxes is one of two major tax bans that give preferential treatment to Internet companies.
The other — a prohibition on states imposing their sales tax on out-of-state Internet sales from the likes of Amazon and eBay — is even worse, as it does real harm to brick-and-mortar stores.
With more holiday shopping moving online, traditional retailers have to resort to ever more desperate measures to overcome their competitive disadvantage and lure customers to shop on Black Friday.
This prohibition also should be ended. The Senate has acted to do so, but the House has shown no inclination to follow suit.
While no one likes to pay taxes, it's time to scale back the subsidies for a powerful, disruptive industry that no longer needs coddling.
USA TODAY's editorial opinions are decided by its Editorial Board, separate from the news staff. Most editorials are coupled with an opposing view — a unique USA TODAY feature.