Senate Debates Internet Tax Ban

A temporary ban expired nearly six months ago. Since then, lawmakers pushing a permanent ban have tussled with those who say a broad prohibition could create a new tax loophole for the telecommunications industry.

President Bush called on Congress to permanently ban taxes on Internet services, particularly high-speed broadband connections, during a stop in Minneapolis on Monday.

"In order to make sure it gets spread to all corners of the country, it must be made affordable," Bush said. "We must not tax broadband access." For more, see story.

Congress first barred taxes on Internet connections in 1998. Since then, new technologies allow consumers to leave behind slower dial-up connections for faster DSL, satellite and cable hookups.

While renewing the ban on Internet access taxes, House lawmakers broadened it to cover the new technologies. Some Senate opponents said the rewrite went too far.

"We would create a permanent tax loophole for the high-speed Internet access industry," said Sen. Lamar Alexander, R-Tenn.

The ban's strongest supporters said it aims at making high-speed service more affordable and more accessible.

"This bill is not about tax breaks for telecommunications companies," said Sen. George Allen, R-Va.

Senate Commerce Committee John McCain, R-Ariz., tried to broker a compromise that would ban taxes on Internet connections for four years.

McCain's proposal carves out an exception for telephone services provided through the Internet, known as Voice Over Internet Protocol or VOIP. Opponents fear that state and local governments stand to lose billions in tax revenue as telecommunication companies shift their services to take advantage of Internet technologies.

Senators hesitant to accept the broadened ban did not immediately warm to McCain's proposed middle ground.

Sen. George Voinovich, R-Ohio, said it too quickly phases out taxes in states that currently impose levies on Internet connections. States that started taxing Internet connections before the 1998 ban would have three years to phase them out. States taxing DSL services would have two years to eliminate them.

Other senators said the federal government shouldn't meddle in state and local tax affairs. Sen. Tom Carper, D-Del., said those senators might try to block the legislation on the grounds that it violates Senate rules intended to keep lawmakers from imposing mandates on states without paying for them.

A study presented by the New Millennium Research Council concluded that letting the ban lapse could be costly to consumers. The study, funded by the United States Telecom Association, concluded that consumers could see DSL prices rise 12 percent if states taxed the service at the same rate as telephones.

Potentially complicating the debate, some Democrats eyed the bill as a target for some of the items atop their political agenda, including efforts to raise the minimum wage and extend expiring unemployment insurance benefits.

The Senate voted 74-11 on Monday to push ahead this week and debate the bill.

Voinovich said the week's deliberations may show that the philosophical divide is "too deep to bridge."

"We have unresolved issues," he said.

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