Speeches & Floor Statements

Remarks Of Sen. Alexander - Internet Tax Moratorium Update

Posted on November 7, 2003

I'd like to make a few comments about the debate we're having about unfunded mandates and Internet tax access. I'd first like to thank Senator McCain, the chairman of the Commerce Committee, who has been working very hard to help bridge what is a fairly big philosophical difference of opinion that some of us have. And I want to express my appreciation to the Majority Leader Bill Frist because he created some time last night and today for us to debate the issues and talk about them. I think we have made some progress. Here is where we are. As with most of our debates in the Senate, we have two valid principles in which most of us believe. First of all, no taxation of Internet access. I have yet to run into a senator who really wants to tax Internet access. Virtually all of us are willing to keep state and local governments from taxing Internet access. I'm a little bit of a purist on unfunded federal mandates - Washington politicians telling state and local officials what to do, but the amendment that I've offered along with Senator Carper and others would ban state and local government taxation of Internet access. That's the first principle. We want the Internet to grow, we don't want multiple taxation, and we don't want taxation that discriminates. The second principle is we don't want unfunded federal mandates. That may be a little bit of a Washington word, but most people know what it means. It means senators and congressmen who come to Washington and pass laws and claim credit then send the bills to schools boards, and governors and mayors. Nothing makes local officials madder. And this Congress, to its great credit since 1995, has been very resolved against unfunded federal mandates. So we don't want to tax Internet access, and we don't want any unfunded mandates, and we haven't found out how to put the two things together. We've offered a solution — there are really two basic ones out there. Ours would be to just take the current law, the current ban on allowing state and local governments to make the decision to tax Internet access, and extend it for two years. And then to make a change to minimize discrimination between providers — providers being the telephone and cable companies. That's our proposal. The proposal on the other side is to create a much broader definition of what we mean by Internet access, which would create a huge unfunded federal mandate that would take away billions of dollars from state and local governments' tax bases that would cause them to cut services or raise taxes on many other things and make it permanent. Our argument is that our two-year extension of the current law, with one adjustment to level the playing field between telephone companies and cable companies, is better for the country than a permanent installation of a very broad definition, so the issues are duration and definition. The reasons for our amendment are these: 1) We want to preserve the original intent of the Congress. The 1998 law was to keep the basic Internet access tax free. By that we mean, when you hook up your computer to AOL, the intention is that that's tax free. In our amendment, even as the telecommunications industry moves more onto the Internet that would continue to be tax free. That's really a significant infringement on state and local prerogatives to decide what taxes to raise on their own. 2) We want to make sure no one would be able to tax e-mail or surfing the web. 3) We want to make sure states don't lose the bulk of their telecommunications revenues. Those are our major goals. The opponents on the other side have raised many objections to these ideas. They say the Internet is so valuable that it shouldn't be taxed. Well, we don't allow taxing it anymore than it is now. I agree that the Internet is valuable. I supported the first moratorium, but it's a grown up business — it's no baby in a crib. We had three years and then two years, and now we're talking about another two years. Telephones are valuable; televisions are valuable; airplanes are valuable; the automobile was a great invention. But we don't tell state and local governments what to do about their tax policy for those businesses. The Internet is not a baby in a crib anymore. It can at least afford to hire some of the most expensive lobbyists. Then they say we're messing around with interstate commerce. I read the Constitution again to make sure I was right. Article I, Section 8 says: "Congress has the power to regulate commerce among the states," but it doesn't say exactly what to do about it. It means Congress can impose limits. It can do some things. There is also another provision called the 10th Amendment, which reserves all powers to the states unless they are specifically delegated to the Congress, and that's where the whole prohibition against unfunded federal mandates came from. That's why in 1995, this Congress passed as its first bill - S.1 - of the new Republican Congress to stop unfunded federal mandates — congressmen telling governors, and mayor, and school boards what services to provide and how to spend their money. So as long as we're allowing states to make decisions about taxation on telephones, and bus tickets, and airline tickets — all of which are interstate commerce — I don't know why we worry so much about that as an argument. There's a concern that we might be taxing broadband — that's Internet service delivered by telephone and cable companies. We're really not taxing anything. We're trying to decide whether we should write some rules to decide what states should do. What our amendment says is that except for grandfathered states that now tax DSL — Internet phone service — it can't be taxed for the next two years. We're trying to level the playing field for two years as we take the current law and extend it for that period of time. Multiple taxation would be banned under our amendment, just as it is today. Discriminatory taxation would be banned under our amendment, just as it is today. Taxes on e-mails and basic Internet access, banned just as it is now. So it seems to us that our amendment is a good one. We're willing to continue to visit and to talk with Senators Allen and Wyden, who have worked very hard and feel very strongly about this. But our arguments are that Congress has promised not to pass anymore unfunded mandates. We've made it a violation of the Budget Act to do so, and we should respect that as much as we possibly can. Their proposal is potentially a huge unfunded federal mandate, which we promised not to do. We believe our amendment is better at reconciling two valid principles: 1) continuing the ban on basic Internet access, and 2) making an adjustment to create more of a level playing field between cable and telephone, while making a minimal offense to the principle of unfunded federal mandate. We also believe that a short term extension allows us to craft wise decisions about what is happening in rapidly changing technology, and theirs would impose an inordinately broad definition of what we mean by Internet access tax. And finally, there was a letter sent around from the Republican Policy Committee, which asserted that the objective of the unfunded federal mandate law was to stop the federal government from imposing affirmative duties and regulations on the state. It basically argues that the Allen-Wyden amendment is not an unfunded mandate. All I can think of is that memo didn't make it all the way through the vetting process. It says the unfunded mandate law that Congress passed in 1995 doesn't apply to situations where Congress might say, for example, states may not collect taxes on telephones. If we were to say that, that would mean state and local governments would be deprived of up to $20 billion of their tax base next year, and they'd have to raise taxes or cut services. By the very plain terms of the Unfunded Mandate Act of 1995, it includes both affirmative action — for example, when we pass a bill that says Memphis shall do a certain program for disabled children, but we only pay for half the cost — that is one kind of unfunded mandate. But according to the Congressional Budget Office and the plain English in the law, it also includes the definition of direct costs of a mandate — the amounts that state and local governments would be prohibited from raising in revenues to comply with a mandate. So an unfunded federal mandate also includes our telling the states: you can't raise revenues from these sources. If we think it is so important to do that, then we're suppose to pay the bill. And I'm afraid that the Allen-Wyden amendment, though they've worked hard to try to narrow it, still raises the possibility that many billions of dollars would be lost for state and local tax bases — in other words, we would be imposing a multi-billion dollar unfunded federal mandate on local and state governments. We believe there is a better way to continue the ban on Internet access taxes but to do it in a way that minimizes the unfunded federal mandate. So we will be working over the weekend. Our staffs are meeting this afternoon. We'll be working early next week, and we hope we can come to some agreement on this in a short period of time. I appreciate Senator Carper's leadership on this issue. I wanted to give that report on the status of the bill.