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Internet Taxation


November 19, 1999


Internet Taxation:
The Deception of "More Fair Government"

By Daniel B. Newby

The Internet taxation battle has begun and sides are quickly being drawn in a fight that will decide the future of e-commerce and the future role of government.

Pro-tax forces claim that government needs to tax the Internet in order to make taxes "more fair." This is an interesting argument and appeals to every person's desire to see government become "more fair" with regard to its policies and procedures. But still, there is something less than genuine within this argument. If Internet taxation really has so much to do with fairness, why aren't these same forces working as hard or even harder to abolish such things as unfair government competition with the private sector, or unfair targeted taxes like the death tax or the tax on gas?

The answer is that pro-tax forces are masking the real issue behind carefully crafted deception. The true motivation behind Internet taxation is to increase the size and power of government. The Internet issue is not about fairness and equity for all mankind, it is about larger bureaucracies, less freedom, and bigger government. It is about getting the camel's nose under the tent so that government can do to the Internet what it has attempted to do to so many other sectors of our economy.

Citizens need to see through this deception and remember that the primary purpose of government is not to be fair, but to protect our basic rights to life, liberty, and property. To do that, government must remain small enough that freedom can exist and flourish. Whenever government growth and power rises to threaten freedom, fairness should not suddenly become the focus, nor should we spend our time and resources trying to get government to hurt all people equally. The focus should always be to regain our freedom freedom from over-regulation, tyrannical taxes, and corrupt government force. This concept may be painful for some citizens to accept, but the alternative is to continue to allow, even commission, government to find more ways to erode the freedoms Americans still retain.

European nations moved early to incrementally regulate and tax the Internet in their states. Today all of Europe along with the rest of the world represent less than 20 percent of all Internet commerce. Once government was allowed to permeate the Internet marketplace, it quickly killed the goose that laid the golden eggs. Here in the United States, where the Internet has been allowed to grow virtually uninhibited by government intervention, the market share is over 80 percent. We most certainly do not want to follow the example of our European neighbors and trade freedom for perceived "fairness."

Pro-tax forces look at e-commerce and the Internet as an enemy to efficient government, and perhaps they are right. In the early years of our nation, there was always a frontier to run to when government became too oppressive. That is the reason the West attracted individualistic settlers looking for a better life. But in our day, there is no longer a physical place to run to avoid the burdens of high taxes and enormous regulation. Perhaps the Internet is indeed the last bastion of freedom from oppressive government. Could it be that Internet sales and greater Internet access are good indicators of just how out-of-control our federal, state, and local governments have become? Perhaps the Internet truly is one of the last enemies to big government and high taxes.

A wonderful solution to the Internet taxation issue already exists: lower sales taxes. Lower state and local taxes would likely go a long way to promote fairness. In addition, lower taxes will not do harm to Constitutional safeguards and will not increase government power or bureaucracy. Utah could even set the example of prosperity by lowering taxes more than any other state and thereby draw eager businesses.

If pro-tax forces are successful, government will grow and do to the Internet what it has already done to education, the postal service, and health care. On the other hand, if anti-tax forces are successful in stopping Internet taxation, government will be forced to take yet another look at lowering taxes.

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Daniel B. Newby wrote this article while employed as the Director of Operations & Development for the Sutherland Institute, a Utah-based public policy research institute.

Permission to reprint this article in whole or in part is granted provided credit is given to the author and to the Sutherland Institute.

Disclaimer: Newby left the Sutherland Institute on January 28, 2003, and has conducted all his efforts since that time as a private citizen.  The Sutherland Institute has officially and publicly disavowed and distanced itself from Newby's political views, tone, and activities.  As a courtesy to the Sutherland Institute, we have posted their e-mail on the matter.


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