[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

[[Page S9069]]

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.

[[Page S9070]]

  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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