CNBC - Kudlow and Cramer transcript

CNBC News Transcripts May 10, 2004 Monday

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CNBC News Transcripts

SHOW: Kudlow & Cramer (5:00 PM ET) - CNBC

May 10, 2004 Monday

LENGTH: 1101 words

HEADLINE: Representative Christopher Cox, Republican from California, discusses whether or not to tax Internet telephony

ANCHORS: LARRY KUDLOW; JIM CRAMER

BODY:
LARRY KUDLOW, co-host:

If you make phone calls over the Internet, should that be tax-free, like Internet access? Or should states and localities be able to tax it if it moves, just like they do other phone calls? Joining us now to help straighten this out is Congressman Christopher Cox.

Mr. Cox, welcome back. Is your view, sir, that Internet telephony, voice over Internet, should be tax-free?

Representative CHRISTOPHER COX (Republican, California): Well, as you know, there's a big difference between the Internet and the telecommunications system that we've lived with for the better part of the 20th century. The real question that we're faced with is not just what to do with voice, but what to do altogether with the Internet, with the computer industry and all of its applications, which have been largely untaxed and unregulated and have been growing in all directions and ways that weren't even imaginable the year before, as compared with old 1930s, you know, Ma Bell descendant-era telephony. I hope that telephony becomes more like the Internet and that the Internet doesn't become more like the old Ma Bell in the 1930s regulatory regime.

JIM CRAMER, co-host:

We can't afford to have it happen, because every other country's treating the Internet as if it's a form of commerce. If we treat it as a form of state commerce, we're fools. But Congressman Cox, this, to me, is not a Republican or Democratic issue.

Rep. COX: Well, I'd agree immediately with that.

CRAMER: But are there any Democrats on your side?

Rep. COX: Oh, of course. In fact, my partner, Ron Wyden, first in the House of Representatives and now in the Senate, is, of course, a Democrat and a leading liberal, and I'm conservative and we see eye to eye on all of these things, because as you say, this really isn't so much about Republicans vs. Democrats as it is about up or down. We want to make sure that we go up, that these things move forward, and most importantly, that we don't stifle technology by locking it all into a regulatory system designed for something else. We had analog scarcity that we were trying to ration in the 1930s. That is a complete irrelevance these days.

KUDLOW: But, Congressman, I just want to circle back so we get a definitive answer. I know you're in favor of a tax-free or a moratorium tax on the Internet, but I want to clarify your position. You are a deregulator on the question of Internet telephoning, but with respect to the issue on taxing it, where do you stand on taxing Internet telephony?

Rep. COX: Well, you know, we've never had, in the Internet Tax Freedom Act, a ban on taxation of telephony, per se. What we've said in the law-this is a law that I first wrote in the 1990s, that Wyden and I wrote, the Cox-Wyden law, the Internet Tax Freedom Act-what we said was that if it's a telecommunications service, then it's not the Internet and that's up to the FCC then to decide which is which, and they're parsing it out, sometimes unpredictably, as each new software application comes up. You know, AT&T lost on their application; some pure Internet plays won.

I think you're going to have something of a regulatory morass for a while, and the point is to know where you're going. If you've got all of this regulated telephony, as I say, left over from the 1930s regimes, on the one hand, they have a good complaint that 'Hey, we're regulated, we're taxed, and these other new Internet companies aren't,' so you're going to lack horizontal equity. On the other hand, if you've got the new Internet outfits, just software, not selling you the public switch network, then why should they be subjected to the old system?

Ultimately, it's really a question of which model wins. Is the Internet someday soon going to look more like the old regulated monopoly of telephony? Or, on the other hand, is telephony going to start looking more and more like the Internet? And I have no question where I want to end up in that competition. I want to move telephony, AT&T and everything else with it, towards the computer digital era, and that means for consumers that we're not going to tax it and we're not going to regulate it. We're going to let the markets regulate prices, not have the FCC fix all the access and Internet connect charges and so on, and we're going to tell other countries around the world, 'We don't want you to tax it, either. We're actually concerned if we start taxing it that you will, too.' And you know what? When we log on the Internet, that digital packet might well be switched through Germany or Korea or Russia or Canada, and we don't want everybody taxing it all at once.

CRAMER: All right. Well, Christopher Cox, let me just ask you one last question. If nothing happens-I mean, because I saw your letter to Michael Powell-if nothing happens in the Congress, it does go back to Mr. Powell, but doesn't it also go back to like, you know, the state? I mean, couldn't Minnesota put a tax on? Couldn't California put a tax on it until we get something federal? I mean, it's wide open, right?

Rep. COX: Well, we do have something federal on the question that Larry put of taxes. We have the Internet Tax Freedom Act. It's expired at the moment, and the Senate finally just passed their bill. We passed ours unanimously in the House. I expect that this year's extension of Cox-Wyden will go forward any week now and that says there will not be taxation of anything that is not pure telecommunications services defined by the FCC. That will apply to states, localities and the federal government.

KUDLOW: So a leading VOIP provider, Vonage, becoming a famous company, in large part through our show, in your view, that should be included under the Internet tax moratorium.

Rep. COX: Well, now, that's the way that the FCC has gone thus far.

CRAMER: Excellent.

KUDLOW: All right.

CRAMER: That's what we...

KUDLOW: That's all. I just want to clarify.

CRAMER: That's as clear as you can get.

KUDLOW: I know.

CRAMER: That's as clear as you can get.

KUDLOW: Thank you.

CRAMER: Christopher Cox, it's great to see you back on KUDLOW & CRAMER.

KUDLOW: Thank you very much.

Rep. COX: All right, happy to have you.

CRAMER: Thanks so much for being on the show.

Next, is the United States an empire for the 21st century? This guy's a great writer, I got to tell you. Later, where's Senator Kerry? Do his ads fail to capitalize on the Bush administration's missteps? Question mark on that. What do we make of the quiet candidate, at least lately?

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