[Congressional Record Volume 149, Number 158 (Tuesday, November 4, 2003)]
[Senate]
[Pages S13891-S13897]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERNET TAX NON-DISCRIMINATION ACT OF 2003
Mr. ALEXANDER. Mr. President, the distinguished occupant of the chair
and I are new Members of the Senate. There are a great many privileges
to being here, and one is the congeniality to new Members of the
Senate. One is the seriousness of the issues with which we deal these
days. One is the great traditions in the Senate. But there is a very
special privilege of being here, and being here tonight, which I
realize, and that is this: Every single one of us as Americans someday,
sometime, while sitting at home or on our job, may suddenly realize
something about our Government that really stirs us up and we wish we
could say something and do something that somebody would hear. We are
angry about it, we are upset about it, we want to say something about
it. I have a privilege as a Member of the Senate of being able to do
just that tonight.
Nothing used to make me more upset as the Governor of Tennessee for
the 8 years I was Governor than when Members of this distinguished body
and the other distinguished body--Members of Congress--would get
together and come up with some great idea and pass a law and tell us to
do it, and then send us the bill requiring us to pay for it, even
though they were printing money up here and we were balancing budgets
at home.
The distinguished occupant of the Chair was mayor of a great city for
8 years, I believe, the same amount of time as I was Governor. I know
he must have felt the same way.
It might have been the case in terms of storm water runoff. Somebody
in Washington, like the EPA, the Environmental Protection Agency, in
that case may have said sometimes when it really rains hard, the water
gets mixed up with the sewage and it runs into the river, so we need to
fix that situation.
Great idea, but who is going to pay the bill? I tell you who pays the
bill. In Minneapolis, you have to raise the property tax, or in
Nashville, you have to raise the sales tax. Or in Maryville, TN, you
have to fire some teachers so you have enough money to do the storm
water runoff.
I remember back in the mid-1970s, about the time I was getting into
politics, the Members of Congress decided we needed to help children
with disabilities. We are all for that. That is a wonderful idea. But
at the time, the Federal Government was paying, as it is today, about 7
percent of all the costs of elementary and secondary education in
America. Most of that is paid for by Minnesota and Tennessee taxpayers
through income taxes, and sales taxes, and property taxes that are
raised at home.
The Congress said, ``Help the children with disabilities,'' but they
didn't pay the bill. So what happens. I meet with the Shelby County
School Board in Memphis. What do they say to me? We have this huge,
terrific cost and these orders from Washington and regulations about
what to do, and then we have to take money we raise, that we would
otherwise be spending for other purposes, and deal with the good idea
from Washington, DC.
I have heard many Members of this body talk a little bit about No
Child
[[Page S13892]]
Left Behind and the new provisions in that bill, wondering whether
those are unfunded Federal mandates, a Washington word that if you boil
it down to plain English means: We will do it up here in Washington; we
will claim credit for it, but you pay the bill.
On Thursday, thanks to the generosity of the majority leader in a
very busy week, the Senate has agreed to consider whether we will
impose yet one more unfunded Federal mandate on State and local
governments, and I refer specifically to the proposal to extend the ban
on State and local authority to tax access to the Internet.
In advance of that vote, which will occur in the next few days, I
want to discuss three basic considerations with my colleagues.
No. 1, some of my colleagues have seemed surprised when I suggested
the proposed ban on State and local Internet taxation is an unfunded
Federal mandate. Let me say exactly in these remarks why the proposed
ban on State and local ability to tax Internet access is an unfunded
mandate plainly in violation of the Unfunded Mandates Reform Act of
1995 which was passed by this body with 91 votes, and 63 Senators who
voted to ban unfunded Federal mandates in 1995 are still Members of
this body. In 1994, over 300 Republican candidates stood on the steps
of the U.S. Capitol and said in the Contract With America: We will stop
passing unfunded Federal mandates, and if we break this contract, throw
us out. That is why, when this legislation is offered later this week,
I plan to offer a point of order against its consideration because the
Unfunded Mandates Reform Act of 1995 says that it is out of order for
this Senate to pass an unfunded Federal mandate. The first thing I want
to describe why this proposed ban on Internet taxation is an unfunded
Federal mandate.
No. 2, I want to discuss a strange case of amnesia that seems to have
enveloped this distinguished body, a strange disease that has caused
many Members to forget, as I mentioned a few moments ago, that in 1995,
at the beginning of the 104th Congress, the new Senate majority leader,
Bob Dole, went down to Williamsburg, VA, and promised Republican
Governors that ``The first bill in the Senate, S. 1, is going to be
unfunded mandates.''
This is especially surprising because Senator Dole was good to his
word and, in fact, the second plank of the Contract With America that
was enacted in this Congress was the ban on unfunded mandates. It was
at the heart of the Contract With America. It was at the heart of the
Republican revolution in 1994.
At that time, I was campaigning across this country in 1994. Nothing
I found made local officials and citizens madder than Washington
politicians who pass unfunded mandates, claiming credit without facing
the costs, whether it was the legislation I described involving
children with disabilities, storm water runoff, or highly qualified
teachers. As a result, 91 Senators voted for the Unfunded Mandates
Reform Act of 1995, and 63 of those Senators are still here today.
No. 3, I would like to discuss an amendment I will be proposing. I am
filing tonight an amendment I call the Unfunded Federal Mandate
Reimbursement Act. If a majority of the Senate should decide that
banning State and local taxation of the Internet is important enough to
create an unfunded Federal mandate--that is, claim the credit up here,
but make it be done down there--then my amendment would provide a way
for Congress to pay the bill for that by authorizing our Department of
the Treasury to reimburse Tennessee and Minneapolis and other State and
local governments each year for the cost of this new mandate.
Let me say briefly what we are talking about and what we are not
talking about. We are not talking about the issue of whether to
authorize States to require out-of-State companies, such as L. L. Bean,
that sell by catalog or Internet, to collect the same Tennessee sales
tax that Friedman's Army Surplus Store would collect when it sells me a
red-and-black plaid shirt. That is an entirely different piece of
legislation. The Senator from Wyoming and others have sponsored that
legislation. The Senator from North Dakota is a part of that. We are
not talking about making it easier to collect sales tax from Internet
and catalog companies.
What we are talking about is whether Tennessee and other States can
collect a sales tax from an Internet service provider when it connects
my computer to the Internet, just as it collects sales tax from the
telephone company when it connects my telephone or from the cable TV
company when it connects my TV. Tennessee has been collecting this tax
since 1996. Nine other States and the District of Columbia also collect
a tax on Internet access.
The Knoxville News Sentinel had an excellent article on Sunday
putting this into perspective. I ask unanimous consent that the article
be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Knoxville, News Sentinel]
Internet's Taxing Issue
State, service providers wage fight over sales tax on Web access
(By Larisa Brass)
Pull out your monthly Internet bill and take a look at the
bottom line.
See a sales tax charge? Maybe, maybe not.
Nearly a decade after the Internet's debut, the argument
still rages in Tennessee over whether online connections
should be taxed like your telephone bill or your cable
service.
The State says wording of its tax code implicitly includes
Internet access as a telecommunications service subject to
sales tax. A number of Internet service providers disagree,
however, saying that Internet access amounts to an
information, not communications, service and is not subject
to tax.
The argument has landed the Department of Revenue and six
Internet Service Providers, or ISPs, in court.
Five cases--two involving AOL and three against CompuServe,
Earthlink and AT&T--are now in litigation in Davidson County
Chancery Court. One case involving Prodigy is awaiting review
by the Tennessee Supreme Court.
A number of disputes between the Department of Revenue and
other service providers have not yet reached the courts,
although the department won't say how many or which companies
are involved.
Tennessee officials say they should be getting $18 million
in revenue on Internet access sales taxes each year. In
reality, the State's Department of Revenue reports
collections of half that amount.
For a State in dire financial straits, that isn't pocket
change. Add it up over the past seven years--the State began
pursuing collections in 1996--and you get about $60 million.
That's enough to fund the Department of Revenue for a year
or pay 1,600 teachers' salaries. In the next five years, the
state estimates it could lose $109 million in uncollected
revenues.
On one side, the Department of Revenue argues that Internet
access should be charged as a telecommunications service
because it falls under the state's definition of
``telecommunications.''
That definition is: ``communications by electric or
electronic transmission of impulses, including transmission
by or through any media, such as wires, cables, microwaves,
radio waves, light waves or any combination of those or
similar media.''
But Internet services providers argue that the term
``telecommunications'' doesn't apply to them at all.
When the State began to actively collect sales tax on
Internet access ``the department simply didn't understand how
ISPs work and that ISPs have never been considered telephone
companies,'' said Henry Walker, a Nashville lawyer whose firm
represents AOL and Planet Connect, a Kingsport-based Internet
service whose dispute with the Department of Revenue has not
yet reached the courts.
``(ISPs) don't sell telecommunications services,'' Walker
said. ``They sell access to the Internet, and that's
different.''
Internet providers simply sell access to information, he
explained, not a communications service. He compared it to
dialing a 1-900 number, saying that users already pay tax on
the phone service and aren't charged separately for using
that service to access information at the other end.
STATE VS. ISP
In the Prodigy case, the trial court and ultimately the
Tennessee Court of Appeals agreed.
The court found that the intent of state lawmakers, when
drafting the telecommunications tax code and the definition
of telecommunications used by the Federal Communications
Commission, supported Prodigy's claim that it should not have
to collect sales tax on its service.
In addition, the court said that because telecommunications
was not the ``true aim'' of Prodigy's service and because
customers must supply their own, taxed telephone service to
connect to Prodigy's servers, that the Internet connection
should not be taxed as a telecommunications service.
Last month, the Department of Revenue appealed the ruling
to the Tennessee Supreme Court.
``We think the court was wrong,'' said Loren Chumley,
commissioner of the Tennessee Department of Revenue.
[[Page S13893]]
In a brief filed by the Tennessee attorney general on Oct.
9, the state argues Prodigy's services do ``fall squarely
within the definition'' of telecommunications, according to
Tennessee law, by providing access to ``the Internet, chat
rooms, e-mail and information services.''
The state argued that Internet service should be taxed even
though it was not explicitly included in the law.
``With all due respect to the Court of Appeals, the plain
language of this statute should not be read narrowly to
include only those technologies that existed when the statute
was enacted,'' the filing stated, ``but should be read to
incorporate new technologies, including Internet access and
e-mail services such as those provided by Prodigy.
``. . . Only by giving statutes their full effect can the
law keep up with technological advances.''
In addition, the state argued that the Court of Appeals
should not rely on the FCC's definition of telecommunications
and that to do so is to contradict another state appeals
court decision holding ``that federal regulatory statutes
should not affect the interpretation of state taxation
statutes.''
The Department of Revenue is awaiting the state Supreme
Court's decision on whether it will take the case.
Walker admits the issue isn't black and white. He agrees
that many people use the Internet for communication, such as
placing online orders or using Internet chat rooms or instant
messaging.
And, he said, there may be a place for taxing some types of
Internet communications, such as voice over Internet
protocol, which allows a customer to set up home phone
service via the Internet.
But ``at this point in time, the FCC has said, `No, that's
not telecommunications, that's information services,' ''
Walker said. ``I thought (state officials) were on shaky
ground from the get-go, and I think the court shut the door
pretty hard.''
TO TAX OR NOT TO TAX
In any case, the days of taxing Internet access appear to
be numbered.
Tennessee is one of 10 states that, along with the District
of Columbia, now collect sales tax on Internet access
charges. They can do so because they were grandfathered into
a law passed by Congress in 1998 known as the Internet Tax
Moratorium.
The legislation forbade the collection of state Internet
access taxes unless a state was collecting the taxes before
the federal moratorium was passed.
Two bills now in Congress would end the state's ability to
collect those taxes. One bill now stalled in the Senate would
allow states to phase out the taxes within three years. The
House version, already passed, would end the tax immediately.
Right now, states like Tennessee are more worried about
provisions of the bill they say would end taxes on a broad
array of telecommunications services and cost Tennessee $360
million in annual sales tax collections.
But Chumley said Tennessee stands to lose out, at least in
the short-run, if the tax is abolished. The state is moving
toward a streamlined sales tax system that would allow it to
collect more taxes on the sale of goods via Internet
companies, many of which are not now collecting state sales
tax on purchases.
Chumley said that increased collections on Internet retail
sales, however, won't immediately make up for projected
losses due to repeal of the Internet access tax.
``I am concerned we could count on some revenue loss
immediately,'' she said
If the tax is repealed, that won't affect state cases over
tax collection of the past, Chumley said.
``It's not retroactive,'' she said. ``Again, we're left
back in our case with, well, what is the court going to
do?'' can do so because they were grandfathered into a law
passed by Congress in 1998 known as the Internet Tax
Moratorium.
The legislation forbade the collection of state Internet
access taxes unless a state was collecting the taxes before
the federal moratorium was passed.
Two bills now in Congress would end the state's ability to
collect those taxes. One bill now stalled in the Senate would
allow states to phase out the taxes within three years. The
House version, already passed, would end the tax immediately.
Right now, states like Tennessee are more worried about
provisions of the bill they say would end taxes on a broad
array of telecommunications services and cost Tennessee $360
million in annual sales tax collections.
But Chumley said Tennessee stands to lose out, at least in
the short-run, if the tax is abolished. The state is moving
toward a streamlined sales tax system that would allow it to
collect more taxes on the sale of goods via Internet
companies, many of which are not now collecting state sales
tax on purchases.
Chumley said that increased collections on Internet retail
sales, however, won't immediately make up for projected
losses due to repeal of the Internet access tax.
``I am concerned we could count on some revenue loss
immediately,'' she said.
If the tax is repealed, that won't affect state cases over
tax collection of the past, Chumley said.
``It's not retroactive,'' she said, ``Again, we're left
back in our case with, well, what is the court going to do?''
Tax not so taxing
Not all ISP's agree they shouldn't have to collect sales
tax on the services they sell.
Ed Bryson, owner of Knoxville ISP Esper Systems, said he's
been collecting sales tax since he started his business about
eight years ago.
``I would actually support (Internet service) being
taxed,'' he said. ``This state needs revenue. Do we pay sales
tax on telephone bills? Do we pay sales tax on cable?
(Internet access is) a commodity service.''
Bryson said it's not that he's such a big fan of taxes. He
estimates that collecting and remitting the sales tax on his
services cost about $500 per month. He says the company
collects about $100,000 in sales taxes per year.
And Bryson figures he's lost a few customers to larger
providers that don't charge sales tax.
But, he said, he doesn't believe that the Internet needs to
be tax free for the country to go online.
``Do you really think the Internet needs any fertilizer
right now? Do you really think that Tennessee needs to not
tax the Internet to make jobs?'' he said.
``I don't like taxes anymore than anybody else,'' Bryson
added. ``My philosophy is, just tell me what the rules are
and I'll work within them. More than anything I'd like to see
this (be) fair across the board.''
internet tax
Internet access sales tax: local and state sales tax
charged on Internet service. The State considers Internet
access a telecommunications service under Tennessee tax law.
Tax implemented: 1966
Tax rate: 7 percent state; 2.5 percent local.
Revenues collected per year: $9 million
Estimated revenues uncollected per year: $9 million
Estimated total revenue loss: $63 million
Tennessee court cases involving Internet service sales tax
collection: 6
Companies involved: AOL (two cases), AT&T, CompuServe,
EarthLink and Prodigy.
Other States that tax Internet access: Connecticut, Iowa,
New Mexico, North Dakota, Ohio, South Carolina, South Dakota,
Texas, Wisconsin as well as the District of Columbia
the basics
With multiple tax codes, legislation and initiatives, thing
can get a bit confusing when it comes to sales tax and the
Internet.
1. Sales tax on Internet access. This is a state sales tax
levied on the monthly subscription fees paid by customers to
an Internet service provider.
Some providers don't charge the tax to Tennessee customers,
saying the state legally can't require collection.
The issue has pitted five Internet service providers
against the Tennessee Department of Revenue in court. This
tax does not apply to the sale of goods over the Internet.
(See item No. 3 below.)
2. Internet Tax Moratorium. This law was passed by Congress
in 1998 and prohibited states from charging sales tax on
Internet access.
Tennessee, which already was collecting tax on Internet
service, was one of 10 states, along with the District of
Columbia, allowed to continue collecting the tax.
The moratorium expired Saturday, and the House and Senate
are hashing out a new Internet sales tax law. Both versions,
so far, would end the collection of Internet access sales tax
for the 10 grandfathered states, although the House's bill
would postpone its expiration for another three years. The
Senate bill has been stalled by Tennessee Sen. Lamar
Alexander because of controversial provisions that states say
would hinder collection of sales tax on a broad array of
telecommunications services.
3. Tax on sales via Internet. This is sales tax charged on
items bought over the Internet.
This issue has been in the news recently because Congress
is contemplating a bill, separate from the tax moratorium,
that would mandate collection of state and local sales tax on
goods sold via the Internet to customers in States that
comply with the Streamlined Tax Initiative.
This currently voluntary initiative includes a simplified
tax structure that allows companies to more easily collect
state and local sales tax on goods sold online. Tennessee has
passed legislation changing its tax code to comply with the
streamlined tax guidelines.
Mr. ALEXANDER. I thank the Chair.
Let me go to my first point, why this proposed legislation is an
unfunded mandate.
The proposed legislation is an unfunded mandate because it would make
it illegal for these States to continue to collect State and local
Internet access taxes. The Congressional Budget Office estimates that
these losses would amount to $80 billion to $120 billion a year.
That is not all. The language of the legislation enacted by the House
of Representatives, and every version of that language we have seen
thus far in this Chamber, broadens the ban on taxation on Internet
access and increases the size of the Federal unfunded mandates,
extending to some degree to other telecommunications services, which is
why I suppose we have begun to see the halls filled with lobbyists from
the telecommunications industry as they anticipate the possibility that
[[Page S13894]]
this Congress might be exempting them from some or maybe all of the
taxes that State and local governments put on telecommunications.
Now, there are many estimates about how much this would cost State
and local governments. I have a study prepared in November of 2001 by
Ernst & Young for the telecommunications State and local tax coalition.
This study by Ernst & Young says that telecommunications providers and
consumers of telecommunications services paid a total of $18.1 billion
in State and local taxes in 1999.
I am not suggesting this ban on Internet taxation would eliminate all
of the $18 billion of State and local taxation on telecommunications,
but virtually everyone agrees that it would eliminate some. Every time
we, in our wisdom, tell a State or a city that it cannot use this tax,
all we are doing is increasing the chance that Minneapolis or Tennessee
will increase some other tax, or fire some teachers or lay off some
employees or close some parks. We have to balance budgets where we come
from. If we knock out a substantial part of the ability to State and
local governments to tax the Internet and some part of the
telecommunications industry, we are only increasing the possibility in
Tennessee of raising the property tax, of raising the sales tax, of
raising the tax on medicine, of raising the tax on food or, in our
State, making it more likely that we will have sooner or later an
income tax. That is just one estimate.
Another estimate by the Multistate Tax Commission reported on
September 24, 2003: The Internet tax moratorium passed by the U.S.
House of Representatives on September 17 would end up reducing State
and local revenue collections by at least $4 billion, and as much as
$8.75 billion by 2006, rather than the $500 million estimated cost
under the legislation's narrow original focus.
The sponsors of the Internet tax ban in the Senate, Senators Allen,
Wyden and others, have been working with State and local officials and
with other Senators to try to reduce the amount of loss to State and
local governments. The House bill, which is also before the Senate,
would cost Philadelphia, Nashville, Minneapolis, and our States up to
$4 billion according to this study. So which taxes are they going to
raise to replace it? Which teachers are they going to fire, from which
school? Which park are they going to close? We are substituting our
judgment for theirs.
There are other more specific estimates. We have been hearing from
States. The Governor of Tennessee called me. He is a Democrat. I am a
Republican. That does not matter so much because I respect the office.
I had lunch with another former Governor of Tennessee, one of my
predecessors. He is a Democrat as well. He agrees with us, too.
The Tennessee Department of Revenues says the managers' amendment
will cost us $358 million a year. That is what the improved version of
the House bill will cost one State, according to our State revenue
department.
Then other States have been writing me, and writing their Senators.
They say the Allen-Wyden amendment will cost Kentucky $40 million to
$50 million, maybe $200 million. The new Governor of Kentucky is being
elected, I guess as we speak. He will have a surprise on his hands
perhaps when he finds out that he has some taxes to raise or some
services to cut because we, in our wisdom, wanted to dictate that.
Iowa, $45 million to $50 million; Maine, $35 million; New Jersey, $600
million; Ohio, $55.7 million; South Dakota, $34 billion; Tennessee,
$358 million, as I said; Washington State, $33 million.
These are what the State governments are telling us the new and
improved Senate version of the Internet tax ban would cost State and
local governments. Those are some of the estimates we have heard about.
Now, to my second point, why is this so important? Why should we just
not let it go on through?
Well, maybe one of the advantages of having been around a little
while is I have seen and heard some things that I remember, such as
1994, I remember the Contract with America. I see my distinguished
colleague from Pennsylvania. He remembers the Contract with America. He
was a candidate, I believe, in that same year.
While I do not believe he was there, surely we all remember the 300
Republicans who stood on the steps of the Capitol. This was in
September of 1994. This was just before something that was to happen
that had not happened in half a century. It was a resurgence in the
country that elected a Republican Congress.
What fueled all of that? What fueled that, according to the Heritage
Foundation, in a candidate's briefing book that they did in 1996,
looking back at 1994, chapter 14: With frustrated Americans focusing
their anger increasingly on Washington and gridlock, many political
candidates in 1994 successfully ran against Washington, appealing to
voters to throw the bums out, replace them with individuals more honest
and devoted to the public welfare.
Then they began to list the items of the Contract with America, one
of which was to stop unfunded mandates.
I can remember that in 1994, the Republican Governors assembled in
Williamsburg. They typically do this after an election every 2 years.
There were 30 of them there. Governor Allen, now Senator, was the host,
and Bob Dole, the new majority leader, came down. This is what he
promised the Republican Governors, that S. 1, the first bill of the
Senate, was going to be unfunded mandates. That was what Senator Dole
promised the Republican Governors.
At about the same time, the Heritage Foundation was making a list of
the unfunded mandates in this country that had given rise to all of
this anger and frustration among the American people. I will not read
them all but it reports, for example, that the National Conference on
State Legislatures had identified 192 unfunded mandates on the States,
including Medicaid, regulations governing the use of underground
storage tanks, the Clean Water Act, the Clean Air Act, the Resource
Conservation Recovery Act, the Safe Drinking Water Act, the Endangered
Species Act, the Americans with Disabilities Act, the Fair Labor
Standards Act, only to name a few. Those are all wonderful acts, but
what was happening was they were claiming credit up here and those of
us who were down there were having to pay some of the bill. The U.S.
Conference on Mayors and Price Waterhouse estimated that the 1994 to
1998 cost of these mandates, excluding Medicaid, on 314 cities was $54
billion, or 11.7 percent of all local taxes. The EPA estimates that
environmental mandates cost State and local governments $30 billion to
$40 billion annually. State and local governments spend $137 billion to
ensure safe drinking water.
These are good laws. I would like to have voted for them. I wish I
had proposed many of them.
But the reason we had to come in here this year and pass legislation
sending $20 billion back to the States and to local governments was not
just because of the recession. It was because, consistently over the
last 20 years, we have undercut the ability of State and local
officials to make decisions for themselves about what services to
provide and how to pay the bills.
One of my most vivid memories is of the distinguished former majority
leader of the Senate, Bob Dole, who was elected in 1995 with that new
Congress. He had a little copy of the United States Constitution, and
he pulled it out when he met with the Governors in 1994 in
Williamsburg, when they made the ``Williamsburg Resolve'' to stop these
unfunded mandates. Senator Dole said he wanted to read to them the
tenth amendment of the United States Constitution:
The powers not delegated to the United States by the
Constitution, nor prohibited by it by State, are reserved to
the States respectively, or to the people.
Senator Dole went across this country during 1995, reading this
amendment to Republican audiences and to audiences in general. I know
because I was there at many of the same meetings; and I know because I
was there, that this is the heart and the soul of the Contract With
America and the Republican revolution in 1994.
I am surprised that this case of amnesia has come over so many of my
colleagues and that we have forgotten about the importance of this.
This is a body that is very respectful of one another. It would not be
appropriate, I do not think, for me to mention a Senator's name. I
suppose I could do it
[[Page S13895]]
within the rules of the Senate and then mention what he said about
unfunded mandates in 1995 and apply it to the vote that we will be
taking later this week. But let me read to you just a handful of
examples of the kind of things that Members of this body said on this
floor in 1995 when the Senate, by 91 to 9, passed the unfunded mandates
bill. One Senator said:
In my own State, I repeat to the Senate, local officials,
whether it be the Secretary of the State or Labor
implementing motor vehicle registrations, or the mayor of the
little town where I come from, attempted to meet the needs of
the small city. I have heard their appeals and they clearly
are tired of the Federal Government telling them precisely
how to do things by regulation when they could do it just as
well in different ways at less cost to their people.
A Democrat from the South:
I believe there is a tendency, particularly during a time
of constrained Federal resources, to look to the imposition
of obligations on State and local government as a means of
accomplishing national objectives which we at the national
Government are either unwilling or unable to pay for.
Another southern Senator, this one a Republican:
We worry about how we attract good people into office. It
is things like unfunded mandates that drives them out.
Another Senator from the West:
I served in the legislature and a good deal of our budget
was committed before we ever arrived by Federal unfunded
mandates.
This goes on and on.
The one other matter that I would like to specifically mention before
I conclude is I want to remind, if I may, my colleagues of why this is
an unfunded mandate. Several have come up to me and said: This doesn't
sound like an unfunded mandate to me. I thought an unfunded mandate was
only when you pass a law to do a program, like help children with
disabilities, and then only pay half the bill, which is what we do.
That is one kind of unfunded mandate. But another kind of unfunded
mandate that is specifically defined by the Budget Act that was amended
in 1995 by this Congress is a direct cost that
. . . would be required to be spent or prohibited from
raising in revenues, in order to comply with the Federal
intergovernmental mandate.
In other words, the term ``unfunded mandates'' just requires the
requirements that we impose when we don't pay the bill. Whether we are
requiring a new program or whether we are telling the State it cannot
do this tax or that tax, it is a requirement we are imposing without
paying the bill. In other words, we are claiming credit and asking
others to pay the cost.
The Uniform Unfunded Mandates Reform Act of 1995 created a very
specific procedure for this. This isn't guesswork. It said that when
there appears to be an unfunded mandate, that here is how we enforce
that. First, the Senate committee of relevant jurisdiction--in this
case it would be the Commerce Committee--under section 423 of the
Budget Act, submits a request for an assessment, identification, and
description of any unfunded Federal mandate.
That was done. The Commerce Committee asked the Congressional Budget
Office: Is this ban on Internet access taxation an unfunded Federal
mandate?
And the Congressional Budget Office said: Yes.
I ask unanimous consent that a report by the Congressional Research
Service be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
(CRS Report for Congress--Received Through the CRS Web)
Unfunded Mandates Reform Act Summarized
(By Keith Bea and Richard S. Beth, Specialist, American National
Government, Government Division)
Summary
This summary of the Unfunded Mandates Reform Act (UMRA) of
1995 will assist Members of Congress and staff seeking
succinct information on the statute. The term ``unfunded
mandates'' generally refers to requirements that a unit of
government imposes without providing funds to pay for costs
of compliance. UMRA establishes mechanisms to limit federal
imposition of unfunded mandates on other levels of government
(intergovernmental mandates) and on the private sector. The
act establishes points of order against proposed legislation
containing an unfunded intergovernmental mandates, requires
executive agencies to seek comment on regulations that would
constitute a mandate, and establishes a means for judicial
enforcement. This report will be updated during the 106th
Congress if the act is amended.
Overview of UMRA
History of the Act. Enactment of the Unfunded Mandates
Reform Act of 1995 (UMRA) culminated years of effort by
nonfederal government officials and their advocates to
control, if not eliminate, the federal imposition of unfunded
mandates. Supporters contend that the statute is needed to
forestall federal legislation and regulations that impose
questionable or unnecessary burdens and have resulted in high
costs and inefficiencies. Opponents argue that mandates may
be necessary to achieve results in areas in which voluntary
action may be insufficient or state actions have not achieved
intended goals.
Since the mid-1980s, Congress debated legislation to slow
or prohibit the enactment of unfunded federal manages. The
inclusion of the issue in the Contract with America, the
blueprint of legislation action developed by the House
Republican leadership when it gained the majority practically
guaranteed that action would be taken. UMRA was signed into
law early in the 104th Congress, on March 22, 1995.
Coverage of the Act. Under UMRA, Federal mandates include
provisions of law or regulation that impose enforceable
duties, including taxes. They also include provisions that
reduce or eliminate Federal financial assistance available
for carrying out an existing duty. UMRA distinguishes between
``intergovernmental mandates,'' imposed on state, local, or
tribal governments, and ``private sector mandates.''
Intergovernmental mandates include legislation or regulations
that would: (1) reduce certain Federal services to State,
local, and tribal governments (such as border control or
reimbursement for services to illegal aliens); and (2)
tighten conditions of assistance or reduce federal funding
for existing intergovernmental assistance programs with
entitlement authority of $550 million or more. Exclusions and
exemptions outside the reach of the statute are discussed
later in this report.
Under UMRA, an intergovernmental mandate is considered
unfunded unless the legislation authorizing the mandate meets
its costs by either (1) providing new budget authority
(direct spending authority or entitlement authority) or (2)
authorizing appropriations. If appropriations are authorized,
the mandate is considered unfunded unless the legislation
ensures that in any fiscal year: (1) the actual costs of the
mandate will not exceed the appropriations actually provided;
(2) the terms of the mandate will be revised so that it can
be carried out with the funds appropriated; (3) the mandate
will be abolished; or (4) Congress will enact new legislation
to continue the mandate as an unfunded mandate.
Contents of the Act. The act consists of five prefatory
sections and four titles. The prefatory sections address
matters such as the purpose, short title, and exclusions from
coverage of the act. Title I amends the Congressional Budget
and Impoundment Control Act, as amended, to permit Congress
to (1) identify legislation proposing mandates, and (2)
decline to consider legislation proposing unfunded
intergovernmental mandates. Title I also sets forth
thresholds for action, authorizations, and definitions. Title
II requires that Federal agencies assess the financial impact
of proposed rules on nonfederal entities, determine whether
federal resources exist to pay those costs, solicit and
consider input from affected entities, and generally select
the least costly or burdensome regulatory option.Title III
called for a review of Federal mandates to be completed
within 18 months of enactment. This statutory requirement was
not completed. UMRA assigned the study to the Advisory
Commission on Intergovernmental Relations (ACIR), which no
longer exists. The ACIR completed a preliminary report in
January, 1996, but the final report was not released. Title
IV authorizes judicial review of federal agency compliance
with Title II provisions.The remainder of this report
summarizes the requirements set forth in Titles I, II, and IV
of the act.
Review of Proposed Legislation (Title I)
Referred to as ``Legislative Accountability and Reform,''
Title I establishes requirements for committees and the
Congressional Budget Office (CBO) to study and report on the
magnitude and impact of mandates in proposed legislation.
Title I also creates point-of-order procedures through which
these requirements can be enforced and the consideration of
measures containing unfunded intergovernmental mandates can
be blocked.
Information Requirements. Under UMRA, congressional
committees have the initial responsibility to identify
Federal mandates in measures under consideration. Committees
may have CBO study whether proposed legislation could have a
significant budgetary impact on nonfederal governments, or a
financial or employment impact on the private sector. Also,
committee chairs and ranking minority members may have CBO
study any legislation containing a Federal mandate.
When an authorizing committee orders reported a public
bill or joint resolution containing a Federal mandate, it
must provide the measure to CBO. CBO must report an estimate
of mandate costs to the committee. The office must prepare
full quantitative estimates if costs are estimated to exceed
$50
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million (for intergovernmental mandates) or $100 million (for
private sector mandates), adjusted for inflation, in any of
the first five fiscal years the legislation would be in
effect. Below these thresholds, CBO must prepare brief
statements of cost estimates. For each reported measure with
costs over the thresholds, CBO is to submit to the committee
an estimate of:
The direct costs of Federal mandates contained in it, or
in any necessary implementing regulations; and
The amount of new or existing Federal funding the
legislation authorizes to pay these costs.
If reported legislation authorizes appropriations to meet
the estimated costs of an intergovernmental mandate, the CBO
report must include a statement on the new budget authority
needed, for up to 10 year, to meet these costs. For a measure
that reauthorizes or amends an existing statute, the direct
costs of any mandate it contains are to be measured by the
projected increase over those costs required by existing law.
The calculation of increased costs must include any projected
decrease in existing Federal aid that provides assistance
to nonfederal entities.
The committee is to include the CBO estimate in its report
or publish it in the Congressional Record. The committee's
report on the measure must also:
Identify the direct costs to the entities that must carry
out the mandate;
Assess likely costs and benefits;
Describe how the mandate affects the ``competitive
balance'' between the public and private sectors; and
State the extent to which the legislation would preempt
state, local, or tribal law, and explain the effect of any
preemption.
These requirements apply to all proposed mandates, both
intergovernmental and private sector. For intergovernmental
mandates alone, the committee is to describe in its report
the extent to which the legislation authorizes federal
funding for the direct costs, and details on whether and how
funding is to be provided.
Points of Order for Initial Consideration. UMRA establishes
that when any measure is taken up for consideration in either
house, a point of order may be raised that the measure
contains unfunded intergovernmental mandates exceeding the
$50 million threshold. This point of order applies to the
measure as reported, including, for example, a committee
amendment in the nature of a substitute. For any measure
reported from committee, a point of order against
consideration may also be raised for either intergovernmental
or private sector mandates, if the committee has not
published a CBO estimate, or if CBO reported that no
reasonable estimate was feasible.
In the Senate, if either point of order is sustained, the
measure may not be considered. Otherwise, in ruling on the
point of order, the chair is to consult with the Committee on
Governmental Affairs on whether the measure contains
intergovernmental mandates. Also, the unfunded costs of the
mandate are to be determined based on estimates by the
Committee on the Budget (which may draw for this purpose on
the CBO estimate).
In the House, the chair does not rule on these points of
order. Instead, under UMRA, the House votes on whether to
consider the measure despite the point of order. To prevent
dilatory use of the point of order, the chair need not put
the question of consideration to a vote unless the point of
order identifies specific language containing the unfunded
mandate. Also, if several points of order could be raised
against the same measure, House practices under UMRA afford
means for all to be consolidated in a single vote. If the
Committee on Rules proposes a special rule for considering
the measure that waives the point of order, UMRA subjects the
special rule itself to a point of order, which is disposed of
by the same mechanism.
These procedures are intended to insure that the House,
like the Senate, will always have an opportunity to
determine, by vote, whether to consider a measure that may
contain an unfunded mandate. Also, if the House votes to
consider a measure in spite of the point of order, UMRA
protects the ability of Members to offer amendments in the
Committee of the Whole to strike out unfunded
intergovernmental mandates, unless the special rule
specifically prohibits such amendments.
Additional Enforcement Mechanisms. A point of order under
the UMRA mechanism may be raised not only against initial
consideration of a bill or resolution, but also against
consideration of an amendment, conference report, or motion
(e.g., a motion to recommit with instructions or a motion to
concur in an amendment of the other house with an amendment)
that would cause the unfunded costs of intergovernmental
mandates in a measure to exceed the specified threshold. UMRA
does not require amendments or motions to be accompanied by
CBO mandate cost estimates, but a Senator may request CBO to
estimate the costs of mandates in an amendment he or she
prepares. If an amended bill or resolution or a conference
report contains a new mandate or other new increases in
mandate costs, the conferees are to request a supplemental
estimate, which CBO is to attempt to provide. UMRA requires
no publication of these supplemental estimates.
The UMRA points of order are not applicable against
consideration of appropriations bills. However, if an
appropriation bill contains legislative provisions that would
create unfunded intergovernmental mandates in excess of the
threshold, the UMRA point of order may be raised against the
provisions themselves. In the Senate, if this point of order
is sustained, the provisions are stricken from the bill.
Exclusions and Exemptions. Legislation pertinent to the
following subject matters remains exempt from the UMRA point-
of-order procedures: individual constitutional rights,
discrimination prohibitions, auditing compliance,
emergency assistance requested by nonfederal government
officials, national security or treaty obligations,
emergencies as designated by the President and the
Congress, and Social Security. The provisions of Title I
pertinent to Federal agencies (for example, the
requirement that agencies determine whether sufficient
appropriations exist to provide for proposed costs) do not
apply to federal regulatory agencies. Also, provisions
establishing conditions of Federal assistance or duties
stemming from participation in voluntary Federal programs
are not mandates.
assessment of mandates in regulations (title ii)
Title II requires that Federal agencies prepare written
statements that identify costs and benefits of a Federal
mandate to be imposed through the rulemaking process. The
requirement applies to regulatory actions determined to
result in costs of $100 million or more in any one year. The
written assessments to be prepared by Federal agencies must
identify the law authorizing the rule, anticipated costs and
benefits, the share of costs to be borne by the Federal
Government, and the disproportionate costs on individual
regions or components of the private sector. Assessments must
also include estimates of the effect on the national economy,
descriptions of consultations with nonfederal government
officials, and a summary of the evaluation of comments and
concerns obtained throughout the promulgation process.
Impacts of ``any regulatory requirements'' on small
governments must be identified; notice must be given to those
governments; and technical assistance must be provided. Also,
UMRA requires that Federal agencies consider ``a reasonable
number'' of policy options and select the most cost-effective
or least burdensome alternative.
judicial review (title iv)
The requirements in Title II pertaining to the preparation
of a mandate assessment statement and notification of impact
on small governments remain subject to judicial review. A
Federal court may compel a Federal agency to comply with
these requirements, but such a court order cannot be used to
stay or invalidate the rule.
Mr. ALEXANDER. Then there are some other steps that have to be taken.
Not only is it defined as an unfunded intergovernmental mandate, there
has to be a certain threshold of spending, $50 million adjusted by
inflation, which today would be $64 million.
So the Congressional Budget Office has given its opinion on that, and
they have said yes; it is an unfunded Federal mandate. So what the
legislation provides, and what I plan to do when this comes up on
Thursday, is as the law says. That it is not in order for this body to
pass an unfunded Federal intergovernmental mandate, and that a point of
order may be raised against its consideration. I plan to raise such a
point of order.
The point of order may be waived by this body by 51 votes, which I
hope it does not do because this body told the world in 1995 that it
was through with this business of unfunded mandates. But we will see.
We will see.
I will agree that it sounds good to say we are not going to tax
Internet access. I will agree that there may be a Federal interest in
not taxing Internet access. I agreed when the issue first came up in
the 1990s that while the Internet was still an infant, maybe for the
first 3 years a moratorium would be in order.
But if we think it is so important, then we should pay the bill. We
should pay the bill. We should not fall into this bad habit that
existed before the Republican revolution of 1994 of assuming that just
because we were elected to come to Washington, suddenly we are all wise
and that the Governors and mayors and legislators are not quite as wise
and that we, therefore, ought to tell them what to do and that we ought
to restrict their ability to do it or not do it based upon what their
tax base is. Let them do their job and we can do ours.
I want to end where I began. It is a privilege to be in this body.
One of the greatest privileges is to stand up here and say, on the
floor of the Senate, something I used to think about as Governor time
after time: Why are those Senators and those Congressmen assuming I
can't do my job here? Why are they passing rules and then telling me to
pay the bill, especially when they are printing money and we are
balancing budgets?
I think we should draw the line. If we really believe that a ban on
Internet access in a segment of the telecommunications interest is so
overwhelmingly in the Federal interest, then let's pass an unfunded
Federal
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mandate reimbursement bill and send a check to the States, to
Minneapolis, Nashville, Tennessee, every year, for whatever the cost of
that is.
I remind my colleagues, and I intend to do so as long as I am here,
that they were right in 1994 about the Contract With America. They were
right when they stood on the steps of the Capitol and promised: No more
unfunded mandates. If we break our contract, throw us out. And they
were right when they passed by 91 to 9 in 1995 the ban against unfunded
Federal mandates.
I hope the 64 of my colleagues who are still here remember that vote.
The PRESIDING OFFICER. The Senator from Pennsylvania.
Mr. SANTORUM. Mr. President, to comment on the legislation the
Senator from Tennessee was discussing, I have some concerns about the
Internet and taxation of the Internet. I listened with great interest
to the arguments the Senator from Tennessee has made. I think they are
very good arguments.
I have another argument that causes pause for me and that is that,
while, yes, everybody is talking about all the commerce that occurs on
the Internet, there is a lot more depravity that occurs on the Internet
than commerce.
The top Web sites visited on the Internet are Web sites having to do
with pornography. As the father of six young kids, I have to tell you
that continuing in the sense of subsidies by not allowing taxation
concerns me. It seems to me these Internet IFCs and others who are so
concerned in coming up here saying don't tax us and don't hold back the
potential of the Internet seem to be a heck of a lot less concerned
about the impact of culture debasement that is going on as a result of
the exposure of pornography and violence and what I would consider
antisocial activities that occur with frequency and that are even more
harmfully imposed on young kids in popup ads, through e-mail and spam
and through other vehicles that these lecherous members of the
international community--it is not just in this country--use to try to
sell their wares on the Internet.
I am speaking not as a Senator but as a father who is very disturbed
about people coming here and crying, Don't tax us, at the same time
they are doing very little to stop what I think is one of the scourges
that attacks the decency of our society.
As someone who has been a supporter of the moratorium, as someone who
has never seen a tax cut I didn't like and never saw a tax I did like,
I don't like what I see going on on the Internet. This whole comment
about it is commerce, if you look at where the commerce is, it is not
the kind of commerce I think we want to be supporting.
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