From the Senate Desk

Statement

By a vote of 93-3, the United States Senate recently voted to extend a ban on taxes on Internet access. After months of debate and working toward a solution, the vote shows that the Senate can come to a good result on a complex issue that affects millions of Americans and every state and local government.

I believe this bill balances well two important principles: federalism and free markets. It temporarily bans state and local taxes on Internet access, while doing minimal harm to state and local governments.

This bill is a huge improvement over that passed by the House for three main reasons:

First, it is temporary, not permanent. This will allow more time for Congress to figure out a comprehensive approach on how to regulate and tax the digital migration of various telecommunications and information services to the Internet.

Second, for states like Tennessee that already tax Internet access, this proposal allows them to continue to do so for two or four years. This gives state and local governments the opportunity to review how they collect revenue. Our state elected leaders should be able to decide what Tennessee's tax structure should look like. I have always believed that these decisions are best made on the state and local level.

Most importantly, this bill makes it clear that states and cities can continue to collect taxes on telephone services, even if telephone calls are made over the Internet. This is far and away the biggest issue for state and local governments because they collect up to $18 billion a year in taxes on telephone services.

Federal Communications Chairman Michael Powell stated on January 14, 2004, at the National Press Club that the goal of the FCC in regulating phone calls over the Internet should be to "do no harm" to the industry. I agree and suggest that given the importance of the principle of federalism in American life that the goal should be at the same time to do no harm to state and local governments.

The area where we did not go as far as I would like was in the definition of Internet access. The bill expands the tax-exempt coverage to what is called the "backbone," or business to business transactions.

But we ended up with a good result.

This should serve as a wake-up call to members of the United States Congress that this is the fastest growing new technology in America. It is going to change the way we live. It should be a wake-up call that we're going to have to do some careful, creative, constructive thinking about what the impact of this is on our federal system. What does it do to our governors and our mayors and our county commissioners?

Most of our decisions in the Senate are about conflicts of principles with which almost all of us agree. In this debate we've had a conflict between laissez-faire, free market principles, and federalism. And they're all very important. I've been pushing hard to come to some agreement, and it has taken about six months.

I believe that what we've achieved so far goes a long way in minimizing the effect of this legislation on doing harm to state and local governments. And it's taught all of us that this is an issue we need to learn more about to make sure we deal with it carefully, considering all of the possible consequences.

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