Internet Taxes

INTERNET TAXES

Mr. WYDEN. Madam President, as we move to conclusion of the debate on the question of Internet taxes and votes tomorrow, as has happened so often over the last 8 years that we have dealt with this issue, a lot of Senators have asked for some examples of how all this would work because it is obviously an extraordinarily complicated issue, and the terminology is pretty dense. What I wanted to do was give Senators a sense of what we are talking about.

Of course, under the McCain proposal, Senator Allen and I would simply say, with respect to Internet access, it is tax free. You have already paid for it. It is like buying a carton of milk. You have already paid for it once. You should not have to pay for it again when you pour it on your cereal. That is essentially what the McCain compromise would do.

The proposal offered by the Senator from Tennessee takes a very different kind of tack. I wanted to give a very specific example of how it would work and why I am opposed to what he has been advocating. The Senator from Tennessee, in his proposal, stipulates that there would be no taxes on services used "to connect a purchaser of Internet access to the Internet access provider."

That certainly sounds like a laudable goal and something everyone should support. But because the Senator from Tennessee nowhere defines what the word "connect" means, I am of the view that proposal alone means that scores of jurisdictions in our country would be able to subject a simple message, sent by a Blackberry via DSL, to scores of taxes.

I want to walk through exactly why I believe that. Let us say, for purposes of discussing an example, you send a Blackberry message via DSL from Providence, RI, to Portland, OR. You type your message in and you hit send.

The first connection-again, I am citing that because it is the language of the Alexander proposal-is with a cell tower in Providence. This would then be connected to a Verizon local phone line somewhere in the Northeast. Then it would be connected to a switch, again somewhere on the east coast. The message at that point is connected to AT&T at a network in one of their many facilities on the east coast. AT&T would then shoot the message across scores of States and connect it at a Qwest switch in Portland, in my home State. That Qwest switch then connects the message to a cell tower in Portland. And then, finally, it connects it to the friend in Portland.

The way that message is sent could involve as many as 100 different connections-the concept that is not defined in the Alexander proposal. But depending on how the word "connect" is defined-and it is not laid out anywhere in the proposal of the Senator from Tennessee-you could have hundreds of jurisdictions imposing taxes on the one message I have just described as being sent on a Blackberry from Providence, RI, to Portland, OR.

The reason why that is the case is the Alexander proposal states no taxes would be applied on services used to connect a purchaser of Internet to the Internet access provider. But in the example I just gave, what you would have is scores of jurisdictions across the country saying they are not the exempted connection. They would say they are not the exempted connection, and then they would be off to the races, in terms of imposing these special taxes.

So we are going to have a chance, I think tomorrow, to extend this debate a bit longer. I think people are going to be pretty close to ecstasy to have this debate wrap up, given how long it has gone. But I want to take a minute and try to recap what I think are the central kinds of questions.

From the very beginning, those who have been involved in this effort have tried to promote technological neutrality. We have come back again and again to say all we would like is to make sure that what happens in the offline world is applicable to the online world. We have said it does not make sense today to discriminate against the future, which is broadband delivered through DSL. Certainly, that would be the case if cable gets a free ride and DSL gets hammered.

I am of the view the message you get today under the Alexander proposal-instead of that message, "you've got mail," the message will be "you've got special taxes," and you will have those special taxes because terms like the one I have described this afternoon are not defined.

As I have talked about in the last couple of days, we have pointed out the revenue estimates, which are always so dire in terms of lost revenue on the part of the States and localities, and time after time-and we have debated this in the last 8 years-those revenue projections have not come to pass. I know Senators and their staffs right now are being bombarded by some officials from State and local governments, saying they are going to lose enormous amounts of money, and this is going to drain their revenue base, and it will have calamitous financial ramifications.

But as you listen to those projections-and I know they are pouring into Senators' offices-we have heard those arguments again and again, and they have not come to pass. I point out, for example-and I will quote-in 1997, the National Governors Association said the Internet Tax Freedom Act "would cause the virtual collapse of the State and local revenue base."

The chairman of the Commerce Committee worked with myself and Senator Stevens and others, and we passed the legislation. The Governors said that revenue base was going to collapse. But in the next year, local and State tax revenues were up $7.2 billion. That is one example from over the last 8 years and the journey we have had in the debate over this legislation.

The same thing happened in 2001. Those who opposed our legislation said: The growth of e-commerce represents a significant threat to State and local tax revenues and they might lose tax revenue in the neighborhood of $20 billion in 2003.

According to the National Association of State Budget Officers, State sales tax collections rose from $134.5 billion in 2001 to $160 billion in 2003, an increase of more than $25 billion in 2 years.

We heard again and again this would be devastating to mom-and-pop stores on Main Streets, and pretty much the Main Streets of Maine and Oregon would shrivel up because of the special fix that was provided for sales online. Over the entire period this law has been on the books, the number of sales online has gone up something like 1.5 percent. It has been a tiny fraction of our economy.

The fact is, the major development over the 8 years we have had this legislation on the books is we have essentially seen most of our businesses go to "bricks and clicks." If you walk on the streets of Maine, or the streets of Oregon, our smallest businesses so often are able to expand their sales because they have a significant online component, and people from all over the world can shop at a small store in Maine or Oregon. I think as the Chair will note, these small stores don't have big advertising budgets. They cannot send people all over the world to market their products. Because of the Internet, they are in a position to have a global marketplace. So major development in this field, rather than wiping out Main Street stores, has helped them.

Senator Leahy brought in a small merchant from Vermont who talked to us specifically about the extraordinary gains they have been able to make as a result of the convenience provided by Internet shopping, which will certainly be harmed if the Alexander legislation were to pass.

I imagine we will continue to pummel this subject a bit more tomorrow. Having been involved in this issue for 8 years, I think it is fair to say the decision the Senate makes on this subject will say a whole lot about the future of the Internet. We learned this morning, as the chairman of the Commerce Committee pointed out, we are already lagging behind in terms of broadband investment. That is the wave of the future. I think small towns in Maine and in Oregon-when we talk about access, for example, to the Net and new technology, it is not going to come about through cable, because cable is going to be very reluctant to make those major investments in small towns, such as those that the distinguished Presiding Officer represents, and my small towns. It is going to come about essentially through broadband, delivered via DSL, and the fact is, today, DSL in many jurisdictions is singled out for special and discriminatory treatment. If we were to not update the law, that would be a trend that would be sure to accelerate.

So I think this is going to be an extremely important vote tomorrow. This is a law that has worked. I will wrap up with this one comment I have mentioned to colleagues, as we have talked about this over the years. I have not found a single jurisdiction anywhere that can point to an example of how they have been hurt by their inability to discriminate against the Internet. That is all we have sought to do over the last 7 years. We said treat the Internet as you treat the offline world. When we started, that was not the case. If you bought a paper the traditional way in a number of jurisdictions, you would pay no taxes. If you bought the online edition of that very same paper, you would pay a tax. That was not technologically neutral. So we passed the first Internet tax freedom bill to deal with that kind of example.

For over more than 5 years, this is a law that has worked. Under the McCain compromise that we will vote on tomorrow, we would simply be updating that law to incorporate the kinds of technologies that evolved over the last few years.

I wanted to make sure tonight that people understood with a specific example of a message that would go from Providence, RI, to Portland, OR, how the vagueness in terms of the definitions in the Alexander legislation would, in my view, subject a simple message sent by BlackBerry via DSL to scores of new taxes. I cannot believe any Senator would want that to happen, and that is why I am hopeful we will get support for the McCain compromise and be able to move forward to final passage of the legislation.

I yield the floor, and I suggest the absence of a quorum.