[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

[[Page S13896]]

     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

[[Page S13897]]

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.

                          ____________________