Tech Environmental Impact Statement

S. 156 – The Permanent Internet Tax Freedom Act

Sponsors: Senators Wyden, McCain, and Sununu
Status: Introduced Jan. 4, 2007

Legislative Background S. 156 makes permanent the existing temporary moratorium on Internet access taxes. Current law prevents states and cities from taxing consumers for the communications services they rely on for Internet access, but this moratorium will expire on November 1. By enacting a permanent ban, Congress demonstrates that it is serious about increasing broadband deployment and narrowing the digital divide for all Americans.   The Internet Tax Freedom Act first became law in 1998. Recognizing the benefits of allowing internet access—especially broadband—to be free from state and local taxes, Congress renewed the law twice more, once in 2001 and again in 2003.  Tech Environmental Effects    This bill would benefit the tech environment in several ways:  Taxing Internet access widens the digital divide and limits the economic, educational and healthcare opportunities available to lower-income Americans. Only 11 percent of households with incomes below $30,000 have broadband service, compared to 61 percent of households with incomes above $100,000.[1]  Economists have found that high prices prevent consumers from upgrading to broadband.[2]   Broadband access equals opportunity, but taxing access raises costs for telework, distance learning, interactive medicine, and new online business models. Broadband access increases opportunities for telework. 59% of employees would prefer work from home at least part-time.[3]  By 2008, 41 million employees globally may spend at least one day a week teleworking.[4]   Internet access taxes will slow broadband deployment, particularly in rural and low-density areas. Fewer consumers will buy a higher-priced taxed product. A smaller pool of potential customers means providers can’t justify investment in new broadband infrastructure build-out.

Tech Environmental Impact Studies  Assessing legislative, regulatory, and judicial activity to determine positive or negative effect on the Tech Environment.  The Tech Environment  The system of legislative, regulatory, and judicial conditions under which technology companies operate, innovate, and compete.  About ACT  The Association for Competitive Technology (ACT) is an international education and advocacy group for the technology industry. Focusing on the interests of small and mid-size entrepreneurial technology companies, ACT advocates for a “Healthy Tech Environment” that promotes innovation, competition and investment.

TEQI Scoring

The table below applies the TEQI scoring matrix to this legislation. In each of 10 TEQI categories, the bill is analyzed for potential positive or negative effect on the Tech Environment.

TEQI Category	Score	Analysis
Reduces cost of doing business	+1.0	If the access tax moratorium expires, Internet connection costs could increase by $85 or more per year.[5]
Expands Market Opportunities	+1.0	Increased opportunities for telework, telemedicine, distance learning, and new business models. A July 2006 Hudson Highland Group Survey reveals that 59% of employees would prefer to work from home at least part-time. A Deloitte study published in 2006 finds that by 2008, 41 million employees globally may spend at least one day a week teleworking.
Particularly favorable to small tech firms
Takes government out of a market/process
Enables firms to participate in regulatory process
Reduces uncertainty/encourages investment (VC, Wall St)
Stimulates Innovation	+1.0	The more people that access the Internet, the more valuable it becomes to entrepreneurs and other innovators.
Encourages consumers to spend	+1.0	73% of Americans use the Internet, but only 42% have broadband at home.[6] Lower prices will increase consumer demand for more and faster Internet access.
Allows for ROI – encourages business spending	+1.0	Internet providers will spend to satisfy consumer demand for higher connectivity speeds and deploy new or upgraded infrastructure.
Workforce growth/stimulates employment	+1.0	As providers deploy new networks, telework opportunities increase, especially for workers that live in rural areas. Employers will have new hiring and working opportunities available to them.
Total	+6.0

Conclusion

S. 156 seeks to prevent the excessive taxation of a vital service—Internet access.  The effect of not renewing would have substantial downstream effects for Internet infrastructure around the country, but especially in rural and high-cost / low-density areas. Taxes keep prices high and decrease consumer demand, which lowers the expected returns of Internet infrastructure providers from building new and upgraded networks.     

Prohibiting Internet access taxation is consistent with existing federal policies that have pursued a less-burdensome regulatory environment for the Internet and other new communication services. A tax on Internet access is a tax on our ability to communicate, educate, and inform. A permanent tax moratorium promotes continued innovation on the ‘Net. 

   

1 Michael Clements and Amy Abramowitz, The Deployment and Adoption of Broadband Service: A Household Level Analysis, 2006. 

 2 Robert W. Crandall and Charles L. Jackson, The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access, July 2001.  

 3 Hudson Highland Group, July 2006. 

4 Deloitte & Touche LLP, Eye to the Future – How Technology, Media and Telecommunications Advances Could Change the Way We Live in 2010, 2006. 

5 Assuming that Internet access is taxed similarly to wireless telecommunications, 17%, or $7, of a consumer’s broadband Internet access bill will go toward taxes each month. 

6 Pew Internet and American Life Project, May 2006. 

Tags: Broadband Access, North America

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