Obama's Plan to Tax the Internet

Sep 09, 2014

One of Washington's well-known tricks is to set up unpopular legislation for lame duck passage. The continuing resolution (H.R. Res. 124) released on Tuesday night seems to set up another such violation of the will of the people.

While much of the attention surrounding the CR has rightly focused on the Export-Import Bank, the funding bill quietly tilts the scales on the debate over the internet sales tax. The CR contains just a 2-month extension of the Internet Tax Freedom Act (ITFA), which prevents states and localities from imposing taxes on internet access (sometimes called "email taxes"). This places the expiration of ITFA right in the middle of a lame duck session.

ITFA has enjoyed widespread support since it was first enacted in 1998. In fact, the House recently passed a bill, H.R. 3086, making the moratorium permanent, by a simple voice vote. The companion bill is sponsored and championed in the Senate by none other than the Chairman of the Finance Committee, Sen. Ron Wyden (D-OR).

Despite this clear mandate for a permanent extension, pro-internet sales tax members of the Senate are holding a permanent solution hostage to try to jam through their unpopular tax on internet sales, ironically known as the Marketplace Fairness Act. Sensing that the time was not quite right to try their internet sales tax gambit in weeks before an important national election, the members engaged in a strategic retreat on the issue, calculating that their best chance of passing their plan would be with a short-term extension of ITFA that pushed the issue into the lame duck.

The CR that could be voted on as soon as Thursday plays right into the hands of the pro-internet sales tax crowd. Instead of demanding Senate action on the House's permanent ITFA extension (and holding the hostage-takers accountable if Americans' internet bills went up in October), the CR lets the pro-internet sales tax crowd off the hook, releases them from their political bind, and sets them up nicely for their ultimate goal. All this despite the fact that their position is unpopular and would not win out in the court of public opinion.

And just how unpopular is the internet sales tax? Just 35% of Americans say they favor the idea. Two-thirds of self-identified Republicans and conservatives oppose the measure, and independents are not far behind, opposing by a 56%-37% margin. Even the majority of self-described Democrats oppose the internet sales tax. And, far from being an uninformed opinion, the polls swing less favorably when respondents are given more specific descriptions of the internet sales tax legislation being promoted in Congress.

That the internet sales tax is unpopular is clear. It is also bad policy, effectively increasing Americans' taxes and violating principles of federalism, government taxing power, tax competition, and regulation without representation. There is no excuse for Congress intentionally punting on the issue to a time when the American people's ability to hold their representatives accountable is lowest.

The internet sales tax cannot withstand public scrutiny. It can only be pursued in a lame duck Congress. Unfortunately, that's exactly what looks likely if the current CR is passed into law.