[Congressional Record Volume 145, Number 164 (Thursday, November 18, 1999)]
[Senate]
[Pages S14768-S14769]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        INTERNET TAX MORATORIUM

  Mr. GREGG. Mr. President, today marks the 1-year anniversary of the 
Internet tax moratorium and the setting up of a commission to look into 
the manner in which we tax the Internet. This moratorium was to last 
for 3 years, and the commission was to meet and begin the process of 
trying to determine how best to deal with the variety of proposals to 
place taxes on the use of the Internet, products which are sold over 
the Internet, and services which are supplied over the Internet.
  Obviously, the Internet represents a watershed mark possibly in 
history as to economic activity. It is a period in which we have seen 
the Internet become an economic engine of immense proportions for our 
Nation and for the world. The Wall Street Journal reported on October 
18 that electronic commerce not only positively affects economic 
activity but has had a very positive impact on reducing the rate of 
inflation.
  Products sold over the Internet are actually forcing down prices as 
competition occurs and products, such as prescription drugs, have been 
found on the Internet to be 28-percent cheaper and apparel 38-percent 
cheaper. The overall index found that products generally were about 13-
percent cheaper on the Internet. The Internet has not only been a 
wonderful economic engine; it also has been a force for maintaining and 
controlling inflation during this period of dramatic prosperity.
  Of course, the Internet is growing at an incredible rate. Over the 
last 12 months, Internet economic growth has been about 68 percent, 
which is a huge rate of growth compared to a national economic rate of 
growth which is somewhere in the 3- to 4-percent range, if we are 
lucky. The role of the Internet in our society is immense today and is 
getting even more significant.

  The question is, How do we deal with it in the context of taxes? 
There is a large number of communities and a number of States in this 
country that wish to assess on Internet transactions their local sales 
tax activity, much the same as they attempt to assess catalog sales. 
There are something like 30,000 jurisdictions which could assess taxes 
on the Internet.
  The effect, of course, of having this diffuse and extraordinarily 
large group of taxing authorities--50 States and 30,000 
subjurisdictions of those States--with a potential of taxing the 
Internet at various rates could, quite simply, grind to a halt this 
wonderful engine of economic activity and prosperity into which our 
Nation has gone.
  Literally, if we allow the Internet to be subject to this variety of 
taxes and this variety of tax authorities, and the imagination and 
creativity we always see from various Government entities when it comes 
to taxing, literally we could end up stopping the Internet as an 
effective force for economic expansion and prosperity.
  Furthermore, the concept of taxing the Internet, which is clearly a 
national and really a global instrument of commerce, appears, to me at 
least, to fly in the face of our Constitution. The commerce clause of 
our Constitution is pretty specific. Section 8, clause 3, of the 
Constitution reads:

       The Congress shall have Power . . . To regulate Commerce 
     with foreign Nations, and among the several States, and with 
     the Indian Tribes.

  There can be nothing that is a form of commerce more among the 
several States than the Internet as it presently is expanding, growing, 
and becoming a force for economic activity.
  Thus, the taxing of the Internet by all these different entities 
would clearly, in my opinion, raise serious constitutional problems. In 
fact, the Supreme Court addressed this issue when it came to catalog 
sales in the Quill case, where the Supreme Court essentially ruled that 
States, unless they have a nexus relationship with the seller of the 
assets, do not have traditionally the ability to tax that transaction.
  Secondly, Congress needs to look at the issue of taxation because of 
the extraordinary, as I have mentioned, chilling effect it would have 
on commerce generally. We, as a nation, as the creators and inventors 
of the Internet and, therefore, controllers not only of the initial and 
expanding technology, but also of the language which dominates the 
Internet, have put ourselves essentially as a nation on a rocket sled 
of economic activity. We have expanded and accelerated at an 
extraordinary speed past the rest of the world towards economic 
prosperity.
  I recall, rather vividly, in the late 1980s when the ``woe is me'' 
crowd was saying that Japan was going to overtake the United States in 
all functions of economic activity, and that our economic model for 
prosperity simply could not compete with the Japanese economic model of 
prosperity, which was intimidating and which remains significant.
  But the fact is that it did not work out that way. It did not work 
out that way because America's strength is our entrepreneurship and our 
inventiveness. We took that entrepreneurship and inventiveness and we 
created this massive new vehicle for economic activity called the 
Internet. Thus, instead of being overwhelmed by our friends and 
neighbors and allies in the industrial world, we have, instead, 
exploded past them in the ability to produce prosperity and economic 
activity, in large part because of the Internet and the offspring of 
technology which it has created.
  So we do not want to do anything which jeopardizes the unique and 
special international lead that we have in this area. Yet allowing 
thousands of different jurisdictions to tax the Internet would do 
exactly that. It would jeopardize that lead and undermine and, as I 
said, possibly bring to a complete halt the use of the Internet as an 
element of commerce.
  The third thing we must be sensitive to in this area of the Internet 
is the international implications beyond the questions of trade. It has 
been suggested by people at the U.N. that the U.N. should start to fund 
itself by putting in place a tax on e-commerce and e-mail. At first it 
was an outrageous suggestion, but it is the type of suggestion you get 
at the U.N. from people

[[Page S14769]]

who represent nations which maybe do not have as much of a financial 
interest in it as we do and know that we would end up paying the tax, 
our Nation would end up paying the burden. But the fact that has been 
suggested is just a sort of crack of the door behind which, if it were 
fully opened, you would see an international initiative of significant 
proportions to place taxes on the Internet.
  As a result, if we have essentially come to the table, having already 
soiled our hands with taxing the Internet, it will be very 
extraordinarily difficult for us to resist, whether it is the U.N. or 
whether it is some other nation that also tries to pursue this course 
of action. It is essential, for the purposes of seeing an expansion of 
this technology and this form of economic activity, that we dampen down 
and restrict and as aggressively as we can resist having other nations 
pursue the path of taxation of Internet transactions.
  Obviously, the U.N. has no right to step into this ground. In fact, 
as chairman of the appropriating committee that has jurisdiction over 
the U.N., I put specific language into an appropriations bill, which 
hopefully will pass today, that says the United States will not spend 
any money at the U.N. should the U.N. pursue this course of action, 
which I am sure they will not. This was some idea put forward by 
somebody there, but I do not think it speaks to the majority at the 
United Nations.
  But those are three core reasons why we have to be extraordinarily 
sensitive to what the tax policy is relative to the Internet.
  The reason I raise this is because it took 8 months for the Internet 
commission to get started. That was not their fault. Really, it was the 
fault of those bodies which had the obligation of appointing membership 
to the commission. Actually, under Governor Gilmore, this commission 
has done an excellent job of meeting. Governor Gilmore's position 
relative to taxation over the Internet is exactly the position that 
should be pursued. However, I am not sure he has a majority position 
within the commission. I hope he does.
  But in order for us to assure this threat to our commerce does not 
occur, I believe we should extend this moratorium. Since we had at 
least 8 months of delay before we got this commission up and running, I 
think we should have an extension which recognizes that the commission 
should have the full 3-year period; therefore, we should extend the 
moratorium for another year, at a minimum, on the Internet.
  I happen to think it should be extended beyond that, well beyond 
that, because I believe certainty in the area of taxation is one of the 
key issues for maintaining economic activity. If people participating 
in an economic activity can predict what their tax obligations are and 
what the tax implications will be to an economic initiative, then they 
are much more likely to be willing to invest capital and take the risks 
necessary to pursue that initiative. But if they cannot predict their 
tax liability, then that limits and dampens down the desire to put 
capital and take risks in a certain economic activity. We have seen 
that historically.
  So I do believe very strongly that we should not only be extending 
this moratorium for a year but that we should be extending it for a 
series of years beyond the 3-year moratorium that presently exists.
  Let's face it. The economic benefit which this Nation has seen as a 
result of this truly revolutionary event--in the history of economics, 
I suspect this is going to go down with the industrial revolution as 
one of the most significant turning points in the history of prosperity 
and the way nations generate wealth.

  The benefits which we, as a nation, have obtained as a result of 
this, as a result of being the incubator, the developer, and now the 
provider in expertise in the area of the Internet, and the use of the 
Internet for commerce, the benefits which we have received, as a 
nation, are basically incalculable: the amount of new jobs which have 
been created; the number of people whose standard of living has been 
increased; the number of people who have been able to purchase goods at 
less of a price; and the number of people who have simply had a better 
chance to participate in prosperity.
  The Nation as a whole has seen economic activity and economic 
prosperity that has been a blessing to everyone, in large part because 
of this huge expansion in e-commerce and in the Internet as a force. 
Those benefits dramatically exceed any benefit which we would obtain by 
allowing a large number of different States or municipalities to start 
taxing the Internet for the purposes of expanding their local 
governments.
  It is the classic situation of the goose that lays the golden egg, to 
say the least. We have confronted a goose that is laying a lot of 
golden eggs for America, and for the prosperity of America, and for the 
opportunity of America to create jobs. For America to maintain its 
place as a world leader, we should not make the mistake of maybe not 
cutting off the goose's head but nicking that goose with thousands of 
different taxes which may cause it to, unfortunately, stumble or even 
be stopped as a result of allowing the creativity and the imagination 
of our various government units across this Nation to begin to tax the 
Internet.
  So I hope as we wrap up this session we will consider this. 
Obviously, we probably are not going to get it in this major omnibus 
bill, although I tried to do that and it was rejected in committee--an 
extension of the Internet moratorium.
  I do hope when we come back next year this will be a priority item--
to make it clear, to make an unalterable statement to the community 
which is developing and promoting this incredible engine of prosperity 
that we are not going to stop them by turning loose the forces of 
government and taxation on them.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Vermont.

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