[Congressional Record Volume 150, Number 107 (Friday, September 10, 2004)]
[Senate]
[Pages S9068-S9070]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAXATION OF HIGH-SPEED INTERNET ACCESS
Mr. ALEXANDER. Mr. President, the purpose of my remarks today is to
suggest a way to come to a solution in the debate we have been having
as to what extent Congress should interfere with State and local
regulations and taxation of high-speed Internet access.
In April, after a good many months of discussion, the Senate came to
a good temporary compromise on the issue. Our legislation, the Senate
legislation, allows States already collecting taxes on Internet access
to continue to do so for 2 or 4 years, depending on the type of access
tax. It makes clear that State and local governments can continue to
collect taxes on telephone services, including telephone calls made
over the Internet. Our work here in the Senate modified legislation
that came over from the House of Representatives that would have
permanently taken away from State and local governments authority to
include high-speed Internet access in its taxation plans and would put
at risk literally billions of dollars in revenues that States and
cities and towns now depend on to pay for police, for schools, for
parks, and for other essential local services.
Both sides in this debate have legitimate points to make. We see here
a conflict of the principles of federalism in free markets, and I
believe it is a debate about whether there is any justification for
giving additional government subsidies to the high-speed Internet
access industry, which, so far as I can tell, must already be the most
heavily subsidized new technology in our country today.
For now, I would respectfully suggest the logical course would be for
the House of Representatives to adopt the Senate modification. This
would provide temporary certainty in this policy area. But it is an
unsatisfactory long-term solution. For the long term, here is my
suggestion. I propose that representatives of States, of cities, of
counties, and of the telecommunications industry meet together between
now and the opening of the 109th Congress in January and develop a
framework to assist Congress with how to approach this highly technical
but very important set of issues.
In developing this framework, I suggest the parties ought to abide by
the following principles. No. 1, separate the issues of taxation and
regulation. This fall, in some preliminary work on legislation proposed
by Senator Sununu from New Hampshire, the Senate Commerce Committee did
just that. They produced a bill regarding the regulation of Internet
telephony, but also preserving the right of State and local governments
to make their own decisions about how to tax the industry.
Put in its simplest terms, I agree that it makes sense to have a
different, simpler kind of regulation of this new technology which we
call broadband. But I want to achieve this in a way that does no harm
to State and local government revenue bases.
Second, when making decisions about regulation, the principle to
honor should be simplicity, so that the new technology can continue to
flourish. Voice over the Internet technology is not the same as plain
old telephone service. Our regulatory structures need to recognize
that.
Finally, when these representatives of industry and State local
governments get together, as I hope they will, in determining tax
policy, the principles to consider should be simplicity, certainty, and
doing no harm to State and local governments.
There are more than 11,000 State and local tax jurisdictions in the
United States of America. Obviously, it would be burdensome for a small
Internet telephone company who offers services in most or all of these
districts to file that many or even more returns. On the other hand,
there is no justification whatever that I can see for depriving a State
or local government of 5 or 10 percent of its existing revenues simply
to exempt an already heavily subsidized industry from paying its fair
share of taxes.
The idea of inviting those who will be most affected by our decisions
about taxation and regulation to suggest a policy to us is not a new
idea. For example, in February of this year, something called the Voice
on the Net Coalition announced that a number of VOIP providers would
work together to establish voluntary agreements on how to integrate E
9-1-1, access to the disabled, and Government wiretapping, into this
next generation of telephone technology.
They might well also consider universal service in this discussion--
how we would continue to provide telephone service to people in rural
areas with this new kind of technology.
In another example of groups working outside the Congress to make it
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easier for us here, for the last several years something called the
Streamline Sales and Use Tax Project has been going on. States have
been building the technical and legal foundations for a system in which
online sellers or merchants would be required to collect taxes on sales
over the Internet and forward the money to the State where the buyer
lives. This will make it much easier for Congress to then enact
legislation authorizing such collections.
So in the same way I believe industry representatives working with
State and local representatives could quickly suggest a framework that
would make our work here in Congress simpler and speedier. If this does
not happen, I believe we are in for a long debate with a likelihood of
a poor result or even no result. This would serve no one's purpose.
The telecommunication companies and high-speed Internet access
industry would benefit from certainty and simplicity. Governors,
legislators, and mayors at the same time need to know where revenues
are coming from. They want certainty, too.
There are other, bigger fish to fry in the telecommunications area.
The Telecommunications Act of 1996 needs a fresh look in some
fundamental ways. When Congress enacted it, maybe no one in the Senate
or the House knew very much about high-speed Internet access. State and
local governments would like to move ahead with their streamline tax
project. Neither is likely to happen until the Internet access tax
issue is resolved.
Let me say a final word about the technology we are discussing, high-
speed Internet access or, as we sometimes call it, broadband. Last
year, during our debate, there were dire predictions that if States
were allowed to continue to tax this access, it would become a terrible
burden for the industry and restrict its growth and put the United
States in some kind of technological backwater. Nothing could be
further from the truth. Almost every day in my mailbox comes a new
offer from someone to sell me high-speed Internet access. From my phone
company, from my long distance company, from my satellite TV company--
even electric companies are selling high speed-Internet access. Next
thing you know I expect the milkman to show up offering to provide me
with high-speed Internet access.
And the prices, as usually happens with a new technology and
competition, are going down. Most of the offers I receive in my mailbox
are in the range of $20 a month, and in many states and communities--
Texas is an example--these costs to the consumers are further reduced
by government subsidy.
Here are some of the facts. Market data from the research firm
Nielsen/NetRatings shows in July of 2003 38 percent of home-based
Internet users had a broadband connection. One year later, in July
2004, that number had jumped to 51 percent. The same report shows that
the number of broadband connections altogether in July 2004 rose 47
percent from a year ago.
Meanwhile, investment in broadband over powerlines, as I mentioned
earlier, is gaining steam. According to the Chartwell research firm,
the percentage of utility companies planning or considering broadband
deployment rose from 6 percent in 2000 to 20 percent in 2003. This
means if you have an electric line coming into your house, you have
access to high-speed Internet access.
Internet telephones, called VOIP, are experiencing the same kind of
rapid growth. According to the telecommunications industry, by the end
of this year, in only 4 months, there will be 6 million VOIP access
lines. They expect that figure to rise to more than 19 million by 2007.
Cablevision Systems began offering VOIP service in November of 2003
and in 2 months had 29,000 customers and was signing up new customers
at the rate of 2,500 a week.
The VOIP explosion has hit traditional telephone service providers.
In August, the Washington Post reported both MCI and AT&T traditional
long-distance services are suffering, in part from the increase in
telephone calls made over the Internet with VOIP service. As a result,
even these companies have moved into the VOIP market. AT&T has
introduced its CallVantage VOIP service and now has it available in 39
states as well as the District of Columbia. Sprint has teamed with Time
Warner Cable to begin offering VOIP services to 11 million customers
and is forging new relationships with other cable providers to expand
its services availability.
Finally, one of the pioneers of the VOIP industry, Vonage, announced
in August that investors had sunk another $105 million in venture
capital into the company, the largest venture capital deal to date this
year.
So the bottom line is this: Broadband, or high-speed Internet access,
continues to be adopted at a tremendously rapid rate. It is being
adopted at a faster rate than CD players, than cell phones, than color
TVs and VCRs were being adopted during the same periods in their
development.
As the Congressional Budget Office has specifically told Congress,
there is absolutely no justification whatever for additional Government
subsidy for this industry. High-speed Internet access is a fine,
remarkable, admirable, new technology. But so was television, so was
radio, so was electricity, so was the internal combustion engine. It is
not the American way to subsidize such new inventions. It is the
American way to let these inventions earn their way forward in the
marketplace. Americans never got a tax break to buy a television set
and TV manufacturers never got a subsidy, so far as I know, to build
them. Yet 30 years after they were introduced to the market, almost 90
percent of Americans owned a television set. That is the American way.
Telephone companies, in the same way, introduced cell phones without
any prompting from the U.S. Government. In less than 15 years, more
than 40 percent of all households now own cell phones.
Of course, what is especially galling to me is that Congress would
even consider creating this big tax break or tax subsidy for Internet
access companies and then send the bill for that tax break to State and
local governments who are already struggling with additional costs
because of our failure to create a rational health care policy and our
failure to create a national immigration policy and our bad habit of
enacting expensive ideas in Washington, DC, taking credit for them in
press conferences, and then sending the bill for the ideas to mayors
and Governors and legislators and city council men and women.
It is my hope that the telecommunications industry representatives,
Governors, and mayors will spend some time with one another during the
next 3 or 4 months and figure out a framework for resolving how
Congress should approach these issues in the most sensible way. I would
be glad to be a part of such discussions if I could be helpful. I am
sure other Members of Congress would as well. The Federal
Communications Commission could provide technical advice.
May I say one word to Governors and mayors. And perhaps I can do this
more appropriately because I once was a Governor. I know Governors are
busy, and they have staffs to help them do their work. But this matter
will not be resolved by a few phone calls from Governors or by staff
members to staff members on Capitol Hill. If Governors and mayors want
the Internet tax issues resolved in a way that does no harm to State
and local governments, in a way that does not threaten 5 to 10 percent
of their base, in a way that does not cost them billions of dollars,
then Governors and mayors are going to need to become personally
involved in helping to resolve this issue, meeting with the
telecommunications industry representatives, and coming up with a
rational way to provide certainty and simplicity for this new
technology and, at the same time, do no harm to State and local
governments.
Mr. President, I believe this will be the speediest, most sensible
way to resolve the conflict we have between principles of federalism
and free markets and to clear the way for Congress to move beyond the
issues of taxing and regulating high-speed Internet access to other
larger, more important telecommunications policy issues.
Mr. President, I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
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Mr. FRIST. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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