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Congress, Taxes and Broadband

Reporter's Notebook: Once again, the issue came down to the wire, but once again, Congress got it done regarding extending the Internet Tax moratorium.

As the Nov. 1 deadline for extending the federal ban on some forms of Internet taxation inched closer, the House, perhaps sensing an opportunity for a no-brainer of a bill, closed some potential tax loopholes in its version and passed the Senate version. Off it went to the President, who signed it into law.

And so, taxing some kinds of Internet services dodges the bullet again. Long live the Internet, said supporters of all stripes who cheered the legislation.

But there's always more to the story. The bill, which was enacted nine years ago and then extended in 2001 and 2004, bans taxes on Internet access. But it doesn't entirely prevent states and cities from passing or raising their own use taxes. Still, it at least holds the line on taxes that could be higher than what people in the physical world already pay on transactions.

Maybe that helps to explain why the permanent ban remained elusive in this bill: it helped garner bi-partisan support. After all, Congress has to do something to placate state and local governments on this issue, especially when broadband access bills are creating new struggles over broadband access, and who collects a piece of the action.

As we've reported before, state and local governments support the moratorium on Internet connection taxes, but only on a temporary basis. After all, why toss away a potential chit for expanding state coffers down the road?

So everybody gets something. By extending the ban for seven years -- the longest extension since the ban was enacted in 1998, tech companies, consumers and policy advocates get what they want too: a ban on taxes they say would impede the growth of the Web use.

Just don't expect a permanent ban, goes one theory, when the Senate also is trying to roll back states' efforts to get a cut on other forms of broadband with the The Community Broadband Act of 2007.

As InternetNews.com reported this week, the bill approved by a Senate panel would reverse laws on the books in Pennsylvania and 13 other states that prevent local governments from providing free or low-cost broadband access to citizens in competition with commercial broadband services.

In addition to prohibiting states from preventing "a public provider" from offering broadband services, the bill also prohibits local governments from discriminating against competing private providers, as Sean Gallagher wrote for InternetNews.com. There's a lot more in the bill, including provisions to help promote public-private partnerships to provide broadband services.

A House version of the bill is bubbling in subcommittee as well.

Whether the commercial providers will succeed in holding back this bill is seen as the next fight to watch regarding broadband access. Internet companies such as Skype, Earthlink and Google are lined up in support of it; access providers see it as a potential threat to their own bottom line on paid services.

Left hanging in the balance is whether Congress is in a position to help the U.S. address its stagnant penetration rates as well as woeful speeds compared to other global markets.

A report this year by the Communications Workers of America (CWA), for example, showed that, on average, U.S. customers average broadband speed is 1.9 megabits per second (mbps) for broadband. The report said Japan averaged 61 mbps (putting it at the top of the list. South Korea clocked in at 45 mbps. Canada came in at 7.6 mbps.

If six months is considered a lifetime in politics, then seven years on a 'Net tax ban should be considered a century. Congress stepped up to that support by passing the ban. The rest of the broadband question -- especially access and speeds -- is as open as ever.

Erin Joyce is Executive Editor of InternetNews.com