Should We Tax the Internet?
Gilder, Bob Metcalfe vs. George
Bob Metcalfe rguing in favor of Internet taxation is a tough job, especially among people who are not Luddite Marxists, but somebody has to do it. And it takes some nuanced arguments that go...
...Or are they really so obtuse that they imagine tax policy to be a rational pursuit, like chip design, rather than a perpetual war against wealth, in which any concessions by the capitalist class are instantly accepted as the new baseline for bids in the eternal pursuit of vote buying by reaucr s ( About the only significant tax proposal to emerge from this campaign as palatable to the political establishment, and the only sensible idea bruited by saintly John McCain _2 after he was through with his proposals ~ , ~ / I to ban political our speech and push / " ( daughters into combat, was In r his op position to taxing the te net...
...Is it only that they have already made their pile and resent the prospect of further Internet wealth...
...For example, who gets to tax the purchase of software downloaded through the Intemet...
...As an instrument of "cruelty," the tax system must rank somewhere on the list, and since it is not applied to most of the population (who are exempted on the grounds of being voters) and since 8o percent of the revenues are contributed by the top 20 percent of the earners, and 9 o percent of the top zo percent hire menial servants, such as lawyers and accountants, to submit to the process in their stead, the actual agony in all its tenesmic detail is undergone only by 743 hapless citizens, rendering it unconstitutionally "unusual...
...From other kinds of taxes, say by increasing property and income taxes...
...They could compete in offering tax calculation services to merchants...
...Bush will not point out this obvious fact since much of his campaign of compassionate hokum consists of more of the same...
...And I said that A1 Gore would follow a "cock-a-doodle-doo strategy," running out to a fencepost and crowing "cock-a-doodle-doo" as new technologies dawned on the horizon...
...If we mean taxing providers of the Intemet, governments are already doing that, and heavily...
...Internet taxation software could easily levy large or very small sales, use, consumption, excise, or whatever taxes for any number of jurisdictions--local, state, national, international...
...Since Republicans have now officially denied, as a matter of principle, both these axioms of taxation, everything they say and do on the subject has become stupid and self-defeating...
...Several Silicon Valley centimillionaires suggested new taxes on the Internet...
...Calculating, collecting, and paying taxes on the Internet could be conducted by harnessing the speed and power of modern electronic data processing via software on the Internet's World Wide Web...
...And citizens could spend less of their time and money on paying their taxes...
...It's inevitable, so let's get it right...
...What a mess...
...As a result, sensitive members of the public now will have to endure a torture even more exquisite than the IRS: namely, exposure to second-hand smoke and halitosis from the debate on taxes, the Intemet, and other economic issues by Al Gore and George W. Bush, without even Alan Keyes to correct them...
...The only candidate who would destroy the economy and thus the surplus is AI Gore, with his socialist health-care schemes and his eco-terrorist proposals enshrined in his Kyoto agreement...
...Most of the tax fell on false gains and thus mounted to over a hundred percent on many long-term investments, while capital losses, copious during this period of high taxation, were absorbed by the risk-taker (minus a meaningless $3,000 exemption...
...In the theory of taxation there has been only one advance since John Marshall opined that the power to tax GEORGE GILDER is publisher of the Gilder Technology Report (www.gildertech.com) and a senior fellow at the Discovery Institute...
...Defeating him is imperative...
...But if Republicans propose Internet taxes and posture on meaningless character issues-- it would be even more important to defeat A1 Gore if he were a saint-the differences between the two parties will be almost impossible to communicate...
...I-commerce is just a percent or two of retail, and state budgets are in surplus anyway...
...I guess I'm saying here that people like me who prefer consumption taxes over income taxes should favor taxation of Internet commerce, which will eventually be the only commerce there is...
...And this is why Icommerce is growing rapidly...
...Supply-siders and only supply-siders ever said we could "grow out of the deficit," and we said it constantly...
...So if taxing providers of the Internet is what we're talking about, game over...
...All the economic growth that yielded higher revenues over the last ten years came as an effect of the resulting flood of capital gains in entrepreneurial startups, IPOs, and ascendant technology companies...
...Virtually all conservative and libertarian economists are terrified of any possible charge that they uphold "voodoo economics," whereby tax cuts yield increased revenues...
...What's needed is agreement on the variables and formats for tax calculation and on how such information will be collected, stored, and protected...
...If Internet software can simplify taxation, then commerce will grow...
...Today with capital gains tax rates at 20 percent [plus state and local levies] and inflation virtually eradicated, effective capital gains taxes have plummeted...
...Yet they now have this new tax, the stated purpose of which is to connect schools and libraries on the Internet...
...The court expects remote customers to keep track of such taxes and pay them themselves, sure...
...That same database could be used to accumulate and later distribute tax revenues by jurisdiction...
...Of course I-commerce taxation software and service should have many providers...
...The Clinton boom was entirely predictable on supply-side principles and I predicted it when he took office, saying that he would be "the beneficiary of iust the most explosive advance in technology in the history of the human race--it could engulf his administration with prosperity in a way that would render many of his adverse policies nearly irrelevant...
...As the only maior candidate who said anything truthful or interesting about anything, he appeared to the voters as some kind of monster or clown...
...And they tax people's incomes from Internet stock dividends (if any) and from sales of appreciated Internet stocks (if any...
...The combination of high inflation and high tax rates caused effective tax rates to be well over loo percent...
...I-Commerce taxation software and services just have to know about international tariffs...
...They are right to worry...
...First, we have to define what we mean by "taxing the Internet...
...The good news is that we'll end up with an easily accessible database of overtaxed and protectionist jurisdictions...
...Calculating, collecting, and remitting taxes is no longer the burden it once was...
...And the potential privacy invasions of consumption taxes need to be weighed against those of income taxes...
...Internet taxation infrastructure raises the usual privacy questions...
...They could compete in offering tax payment services to jurisdictions...
...It further reduces the frictions of commerce...
...His books include Wealth and Poverty, The Spirit of Enteprise, and Microcosm...
...N ow I can hear my fellow libertarians moaning that our governments are already too large and taxes too high...
...access, packet-switching backbones, and dot-com servers...
...One interesting issue in Intemet taxation is which jurisdictions are entitled to tax goods and services that are not physical...
...Various governments tax sales of providers of Internet equipment and services...
...They would compete on service, speed, accuracy, and price...
...Yes, it's easy to move a server and change your geography, so please do...
...Then those same governments tax incomes of people who work at Intemet companies...
...Only taxes on Internet transactions, enacted by fifty states and thousands of other jurisdictions, could bring the Internet boom to a halt or drive it overseas...
...But I'm arguing here as if we have separate control over the structure and levels of taxation...
...My favorite Internet tax to hate is the one now levied by our Federal Communications Commission--the E-Rate--on providers of long-distance telephone calls...
...So I don't actually mean taxing the Internet, but taxing commerce conducted on the Internet: I-commerce...
...I-commerce is rapidly growing...
...So I'm not talking about some kind of new Interact tax, as some opponents put it, but about existing sales taxes being levied on commerce no matter where it's conducted...
...O f course consumers could lie about their Zip codes, pretending to be from low-tax jurisdictions, like they now routinely forget to pay use taxes due...
...and the tax-exempt status of whomever or whatever...
...Arguing against the governors are people who say there's nothing to worry about...
...However, the surplus was created by tax cuts and will be reliably increased by further tax cuts...
...It's no wonder that today the largest warehouses are found in states with the smallest populations...
...And of course the taxation of I-commerce is an international issue...
...His Internet columns are read by half a million information technology professionals per week at www.infoworld.com/metcalfe...
...But of course taxation of I-commerce would be more efficient than what goes on today in the real world...
...But to be against Internet taxation is to be against lower, simpler, more sensible forms of taxation in the New Economy...
...You can be cynical if you want and say that taxes have to be fought wherever they rear their ugly heads, but I prefer to be sure that the New Economy has all the right infrastructures...
...City, state, and national governments, layer upon layer, tax profits (if there are any) of Intemet corporations...
...The American Spectator _9 May 2 o o o 25...
...For example, touters, hubs, network cards, optical fibers, dial-up and broadband BoB METCALFE has been an Internet user since engineering MIT's connection in 197o...
...We are talking here about automating what's already done by hand mostly in retail stores and restaurants all over the world...
...Both these promises are mendacious...
...If there were no I-commerce taxes, and if commerce were to keep moving onto the Internet, where would governments get their revenues...
...is the power to destroy...
...He freed tax policy from the executioner's song...
...tax system could be judged The American Spectator _9 May 2 o o o 21 unconstitutional--on the grounds cited by the American Civil Liberties Union in its briefs against other forms of capital punishment-as a "cruel and unusual" exaction, like the guillotine or garrote, the Chinese water torture, the electrical contraption used to kill the noble giant in The Green Mile, public hanging or crucifixion, or forced ingestion of vegetable iuices containing PCBs or chemical preservatives...
...Audit trails could be kept for finding frauds...
...We are already taxing people who move freely among jurisdictions...
...Consider all the private information we now mail in annually to the IRS and thereby to political operatives in the Clinton administration...
...Even their services could be taxed...
...Let's not make the same mistakes made over Intemet pomography...
...Entrepreneurs could set up taxation service companies...
...And then, court cases...
...But Supreme 24 May 2 o o o _9 The American Spectator Court decisions are sometimes overtaken by events, and this one was decided in 1967, before the World Wide Web, before the Internet, before electronic mail, before affordable modems, before personal computers, before handheld calculators, before a lot of progress that renders this decision out of date...
...He invented Ethernet at the Xerox Palo Alto Research Center in 1973 and founded 3Corn Corporation in 1979 . He is vice president for technology of the International Data Group, which publishes 290 computer magazines in 80 countries...
...The collapse of inflation would have collapsed the capital gains tax, even if the rate had not been reduced by 30 percent...
...And if you want to stimulate the growth, evolution, and use of the (Continued on page 24) 20 May 2o o o _9 The American Spectator George Gilder W hy do Republicans, when they become rich, uffer so masochistically, so hemophilicly, so emorrhoidally, so hemorrhagically from the -raising itch...
...If a tax cut does not yield increasing revenue, it means that the tax was not destructive...
...the time, day, and date...
...On taxes, both candidates are talking gibberish...
...Underlying the debate about Internet taxes is the debate about which kind of taxes are best...
...Various jurisdictions would tax their citizens, merchants, visiting customers, and remote merchants much as they already do today...
...Fixing this opens a can of worms about privacy, to which we'll return in a moment...
...Showing that lower tax rates generate more revenues than higher ones, Arthur Laffer demonstrated the conditions under which tax policy can be differentiated from capital punishment...
...The kind oflnternet taxation I favor is software and services that merchants can use to calculate, collect, and pay taxes due various jurisdictions on goods and services bought over the Internet...
...And the taxes could be calculated as a function of any number of variables, like the dollar amount of the transaction...
...And then we were treated to the seven most feared words on the Intemet: You just don't get it, do you...
...Everyone else was wrong...
...If the Constitution's commerce clause--prohibiting interference with interstate transactions--means anything, it means "lay offthe Internet...
...No problem...
...22 May 2o o o _9 The American Spectator Today, only tax increases could eliminate the surplus, starve government, and make libertarians happy...
...Now I want to go out onto a fencepost myself and crow...
...Higher tax rates do not redistribute income...
...That advance is the Laffer curve...
...And if sales taxes can be made low, simple, and sensible, we can gather relatively more revenues from sales taxes and relatively less from disincentivizing taxes such as income and property taxes...
...Local governments tax property owned by Interact companies...
...Yes, I agree...
...As supply-side economist Brian Wesbury explains in his important new book, The New Era of Wealth, "In the late 197o's, the highest capital gains tax rate was over 4 o percent and inflation was over lo percent...
...That's the job of democracy...
...m I being unfair to these statesmen...
...Long-distance telephone companies and their calls are important to the Internet...
...The little boxes at the bottom of invoices would stay pretty much the same...
...In the last month, two friendly billionaires confided to me that their gravest political fear was not war or terrorism--or even a global warming Kyoto clamp on capitalism--but a "reckless tax cut...
...And it takes some nuanced arguments that go like this...
...Like all government expenditures, they consist in paying select citizens to perform contracted tasks-usually stupid, perverse, or humiliating, such as hiring the incompetent or producing ethanol--that they would not do without the payment...
...Order Oval Office The Race To Be President TM online at .raeetobep reside n l.com Regardless of the outcome, you will enjoy hours of fun, learning, and conversation while playing The American Spectator _9 May 2 o o o 23 Metcalfe: YES (Continued from page 20) Internet, start cutting these taxes to leave money for development, deployment, and lower prices...
...A corollary is that only tax cuts that yield increasing revenues are worth making...
...Combine a winning campaign . ~ strategy with your knowledge "', ~ of current affairs, politics, and ~. , , ~ ~ J history, and you can defeat " '" '~" ~ . your family and friends to become ~ - ~ President of the United States...
...But even he surprised me with his claim of inventing the Internet...
...For example, one could imagine, and we must protect against, a tax server tracing individual taxpayers around on their shopping trips...
...The software could use the Internet to access a taxation server which would compute the tax due from a Zip code-indexed database of jurisdictions...
...Meanwhile, the politicians with constituents who have children (all of them) were forced to develop Intemet pomo policies on their own...
...Since Marshall was right on the relationship between death and taxes, perhaps the U.S...
...And at almost zero marginal cost...
...I-commerce taxation software and services would resemble what we already have for taxes on the sale of goods and services bought at retail, through the mail, and over the telephone...
...Yes, the United States Supreme Court has found that a remote commerce company cannot be forced to go through the enormous trouble of calculating, collecting, and remitting a tax levied by the state of a customer, unless the company has a substantial physical presence ("taxable nexus") in that customer's state...
...Over any significant period, no tax rate above 2o percent collects revenue...
...Without a tax burden, it will grow even more quickly...
...Until the mid 198o's, even a zo percent capital gains levy was ballooned into confiscatory levels by inflation...
...I would just order and pay for my Wal-Mart retail merchandise over the Intemet and avoid taxes...
...This way, governments could focus less on the rigamarole of calculating and collecting taxes, and more on spending the proceeds well...
...The American people, however, in their wisdom or stupor, do not care...
...There are many details yet to work out, but for example, at the time of a transaction, the transaction amount and Zip codes of the buyer and seller could be given to taxation software running on the merchant's server...
...whether it's food or not...
...Having systems for I-commerce taxation does not answer questions about which jurisdictions should be taxing what and for how much...
...Simple...
...Yet in ~t,h " ~ . , the face of this untoward outbreak ~..~.Z~h~" ~ of good sense--applauded even by q " ' ~ l \ ' ~ ' , many liberal editorialists for whom ~~/~)7~-~ the Internet is apparently the only l i v entity that they hesitate to tax-- many Republican politicians and Silicon Valley cranks " ~ . , began scratching as if they had * ~ been plunged naked into a patch of , Internettles...
...And this includes infrastructure for taxation, so that what litfie governments should be doing can be funded efficiently, simply, and with a minimum of counter-productive redistributionist mechanisms...
...Ease of taxation is one of the benefits of I-commerce...
...Isn't it possible for the GOP to suppress its apparently limitless masochism long enough to accept the triumph of its anti-tax principles in this limited way even among the chattering classes...
...they redistribute tax payers--from high tax to low tax jurisdictions and from the productive taxable economy to leisure activities and underground commerce...
...the Zip codes of the buyer and seller...
...But these privacy questions can be answered...
...So, whoever thinks they "get" the Internet had better start working on I-commerce taxation infrastructure before somebody else does...
...Now, if Internet sales were to go untaxed, then we'd end up with the following mess: I could go to Wal-Mart as usual, but not pay for what I take home...
...A1 Gore will promise "targeted tax cuts for the middle class," and George Bush will offer to return some of the surplus to the taxpayers who earned it...
...The E-Rate is a perpetuation of the Universal Service Fund of the regulated telephone monopolies that almost everyone, including the FCC, says should be dismantled...
...Bush's devotion to returning the surplus to the American people through tax cuts is equally fatuous...
...And if your jurisdiction decides to overtax you, move...
...Now, if you are against Intemet taxalion because you think taxes in general are too high, amen...
...Internet taxation software could easily collect sales taxes at the same time payments for the goods and services are collected...
...The Internet is already heavily taxed...
...True enough today, but not for long...
...They could gather tax tables from various jurisdictions onto their servers...
...Is it any wonder that city mayors and state governors are worried about losing sales tax revenues to the Internet...
...Targeted tax cuts are simply another form of government spending...
...As if...
...Intemet-savvy people, many too young to have children, put their heads in the sand on pom...
...And the surpluses, well, look how busy everybody is trying to spend them...
...Consumers and businesses are more and more choosing to use the Internet for commerce because their transaction costs are lower...
...Someone should send an e-mail to the Supreme Court...
...In the glory of their democracy, they have pondered the tax system over the last six months or so, and weighed it, however torturesome, as a burden far lighter to bear than the prolongation for another agonizing minute of the presidential campaign of Steve Forbes...
...If it costs less to calculate, collect, and remit taxes, then the taxes can be lower...
...My first cut at this is that merchants and customers of virtual products have geographies, so tax their virtual transactions as if they were real...
...It's not bad to have governments competing for you...
...And they are right to ask why, if the Intemet is so great, does it have to be exempt from the roles non-Intemet merchants and consumers play by...
Vol. 33 • May 2000 • No. 4
