Wall Street Editorial Board, 8/3/13
Bipartisanship isn’t dead in Washington, at least when it comes to taxing the Internet. On Thursday Senators Ron Wyden (D., Ore.) and John Thune (R., S.D.) introduced a bill to make the Internet Tax Freedom Act permanent. Bob Goodlatte (R., Va.) will likely offer a House version after the August legislative recess. The House is likely to pass it, though the wild cards will be the Senate and President Obama.
The Internet Tax Freedom Act simply prohibits taxes that discriminate against the Internet. This is not to be confused with the separate issue of whether online merchants will be forced to collect taxes for states where they have no physical presence. That tax-the-Web effort passed the Senate earlier this year but is likely to die in the House, as it should.
The Wyden-Thune effort would make permanent the current law that says that if a product is not taxed offline, it cannot be taxed online. Multiple states cannot tax the same online transaction, and states cannot create Internet-only taxes. Consistent with this idea, the law prevents the taxation of Internet access services.
A rare bipartisan policy success in Washington, the law was written by Mr. Wyden and former GOP Congressman Chris Cox and has prevented tax chaos online since its 1998 enactment. After three multiyear extensions, this is a chance to end the policy uncertainty, because there will never be a good time to tax email. And what better way to encourage investment than to make clear, long before the law’s scheduled expiration on November 1, 2014, that the United States will encourage innovation?
The original policy, vindicated in the years since, was to protect this emerging instrument of interstate commerce from the ravages of thousands of state and local tax collectors. Information technology (IT) and the Internet have proven to be rivers of productivity and GDP growth, making them extremely rare in the Obama era.
“IT production, which is mainly the hardware that supports the Internet, has accounted for most of U.S. productivity growth over the past couple decades,” Harvard economist Dale Jorgenson says. “This is very likely to continue for the next decade.” That is, we would add, as long as Washington doesn’t throw sand in the gears of innovation.
Removing the expiration date from this successful law would be a welcome message of growth and regulatory certainty from a capital city that hasn’t been offering much of either. Maybe President Obama’s Silicon Valley friends can persuade him that this is one tax reduction measure even he should favor.
A version of this article appeared August 3, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: No Email Taxes Ever.