Three weeks ago, dozens of CEOs visited Capitol Hill to push an economic agenda underscoring free trade and an ambitious tax cut on foreign dividends for U.S. IT companies. A key stop was the office of U.S. Senator George Allen, a member of the influential Commerce, Science and Transportation Committee who has been behind a number technology initiatives since coming to Washington.
The first-term Virginia Republican is carrying much of the load for tech’s agenda in the 108th Congress, including sponsoring a bill to permanently extend the recently expired federal moratorium on Internet access taxes and co-sponsoring a proposal to reduce the tax on foreign dividends from 35 percent to 5.25 percent for one year.
The foreign dividends tax break is part of a broader package of revised corporate tax laws known as the Jumpstart Our Business Strengths Act (JOBS). It’s aimed at addressing European Union trade sanctions on certain U.S. goods that went into effect March 1. Senate Democrats have decided to use the bill’s title as a platform to criticize the Bush administration’s jobs creation performance.
Wednesday morning, Allen returned to his offices from an unsuccessful vote by the Republicans to break the Democratic filibuster on the legislation and spoke with internetnews.com about the bill and other technology issues before lawmakers.
Q: What’s the status of the foreign dividends tax bill?
The Democrats want to put all sorts of irrelevant, non-germane amendments for political purposes on to this thing so these tariffs are going to unfortunately continue to be imposed on American manufacturers. If they bring their profits back into this country, they get hit with a 35 percent tax, so guess what they do? They keep investing overseas. If you reduce it to 5.25 percent and the way the bill is structured, they are going to invest in this country and that’s going to create jobs.
Q: Typically, as public policy, both Democrats and Republicans are free-traders. How much of the anti-offshoring talk coming from the Democrats is political election year rhetoric?
They don’t have a big solution to it other than punish those companies. I would rather see us address what taxes, what regulations, what policies do we need to improve so we can be more competitive — I think Americans can compete with anyone — but we can’t just shut down or turn this into an isolationist country. It is a concern and it is one that I think ought to get us looking at how to make America better rather than trying to punish the companies.
Q: Just this month, the Bush administration filed a complaint with the World Trade Organization on circuit board subsidies by China and also sent a letter to Beijing complaining about China’s proprietary wireless network encryption plans. Are they moving fast enough on this? Is the right approach now to get tough with China on free trade?
Everyone focuses in on China cheating on textiles and bedroom furniture and they, of course, steal a lot of our intellectual property. This one, though, to me, on semiconductors and how they put that 17 percent [value added tax] on it is the most clear case of them cheating and then giving rebates of 14 percent on those chips are designed and fabricated in China. When you think of all the computers and the electronics that are assembled in China that have semiconductor chips in them, naturally they are going to be using those that cost 14 percent less. It’s a very competitive market and it’s very harmful.
The Clinton administration was very much pro-trade, they’re the ones who wanted normal trade relations with China. This administration is the first one to actually enforce these agreements. I think trade agreements are great as long as they are fair and so long as the countries abide by those agreements. China does not and they haven’t, clearly, in semiconductor chips, so I’m glad this administration is addressing it.
Q: Congress doesn’t seem inclined to make the Internet access tax permanent, or to expand the definitions at this time. Did you overreach this particular session?
The original definition was based on dial-up. Originally everyone was getting Internet access through dial-up. Since then, there’s DSL so you don’t have to buy another telephone line. There’s wireless, there’s satellite, there’s cable modem. This has all really transpired in the last two years since the first [moratorium] was for three years, and then we got [another] two years. I thought [extending it] two years was just punting it, just continuing the debate.
Q: Are we punting again this time?
Well, I don’t know. As we get to it at this stage, you can argue over duration. The reason I like it permanent — the same with Ron Wyden, John Sununu and John McCain — is we cannot envision at any time in the future of our country where it makes sense to be taxing access to the Internet or having discriminating taxes or multiple taxes on the Internet.
So that’s why it ought to be permanent. I think everything around here that is permanent, is not. If somebody felt there is some compelling interest five years down the road that, gosh, we ought to be putting a 10 percent tax on it, they could change the law. So the duration, that’s more a negotiable issue as far as I’m concerned. That’s just horse trading. The definition is the key and then also, in my view, stop these states that have started taxing DSL and the backbone. You have also the exempted states. They’ve had five years, nearly six now, they ought to wean themselves off this access tax.
Q: Senator Sununu said several months ago he was considering drafting a bill to keep VoIP unregulated. FCC Chairman Michael Powell is urging a light regulatory touch. What do you think the government’s approach to VoIP ought to be at this point?
The FCC’s wrangling through this trying to figure out a definition of it. It gets to the connections on one end or the other. If you have a telephone switch at one end or the other they can say, alright, there’s a telecommunications service. And then how do you tax it and then how many different jurisdictions are taxing it as it passes around? How in the heck are they ever going to figure out how to tax that is very problematical and difficult. My point of view is to allow the technology to advance and improve our lives as opposed to worrying about how you are going to tax it.
Q: Senator Lieberman recently said he was “deeply troubled at how little has been accomplished to reduce the very real threat to our computer-based infrastructure.” Do you share that assessment that we really haven’t done much since 9/11 to secure government network systems?
Are we where we need to be? No. There is a recognition, there’s an assessment, our cyber-security and our-cyber infrastructure networks do need to be secure. I do find that businesses, the private sector is addressing it for their own internal [purposes]. I think they are much better and more adept at screening for any sort of viruses, but they still occur. You have to assess, then you have to remediate and then you have to prevent is generally the concept on cyber security. I do think it is getting better but we’re still vulnerable.