The Grinch who robbed the Internet

Posted: Nov 17, 2003 12:00 AM

Imagine waking up this Christmas morning to discover the Grinch had slapped a tax on logging onto the Internet, sending an e-mail and visiting a Web site - or worse, redefined the entire Internet as just another telephone service that would subject Internet service to a combined tax burden in the neighborhood of 18 percent. Then imagine discovering that it wasn't actor Jim Carrey underneath that green face paint but Sens. Lamar Alexander, R-Tenn., or George Voinovich, R-Ohio, instead. Say it isn't so, guys!

But playing the Grinch is exactly what Alexander and Voinovich have been doing lately by filibustering a bill to extend the 6-year-old federal ban on Internet taxation that expired Nov. 1. They should be assigned to do push-ups under the watchful eye of California Gov. Arnold Schwarzenegger. Better yet, President Bush should invite them to the White House and inquire politely why they are willing to risk the economic recovery of the Internet, not to mention the Republican majority, just to enable the spending addiction of their buddies in the state houses and legislatures back home.

The state and local government lobby pretends their "budget gaps," i.e., deficits, result from "revenue shortfalls." In fact, extravagant spending is the problem.

Despite the fact that state and local revenues grew at an average annual rate of 6 percent between 1991 and 2001, spending grew even faster - more than 7 percent a year. No wonder states and localities found themselves in dire fiscal straits when the economy headed south and was slow to recover. But the economy is coming back strong now, and citizens don't buy the line that states have budget gaps because taxes aren't high enough.

State governments, despite two years of little to no growth, are still experiencing substantial increases in tax collections, due in large part to a bevy of tax hikes. In 2002, states increased taxes by $7.6 billion. In the first half of 2003 alone, according to a Tax Foundation report, states have raised taxes on cigarettes by $2.9 billion, sales taxes $1.4 billion, corporate income taxes $1.2 billion and $1 billion in personal income taxes, totaling $8.3 billion. As the economic recovery gathers steam, revenue collections will accelerate even more.

But this ever-rising tide of tax increases and revenue is insufficient to keep pace with the spending flood that is swamping states and localities across the nation. In Voinovich's Buckeye State, under Gov. Bob Taft's watch, state outlays are still growing at more than twice the rate of inflation. This year alone, the Republican governor proposes to increase spending a whopping 11 percent.

Across the nation, voters are refusing to play enabler to their political leaders' spending addiction, and they are rejecting efforts to raise taxes, whether on the Internet or anywhere else. California voters threw Gov. Gray Davis out of office in part because he couldn't resist raising the car tax, and they replaced him with Schwarzenegger, who repealed the tax hike just after taking office and said he did not intend to raise any other taxes. Alabama voters rejected Republican Gov. Bob Riley's tax-hike referendum by more than a 2-to-1 margin. Seattle voters repudiated a tax on latte coffee by a similar margin.

Ohio's Secretary of State Ken Blackwell, who served with me at the Department of Housing and Urban Development and on the National Tax Reform Commission, is rallying voters to force the Legislature to rescind the stealth 20 percent sales tax increase that Taft helped slip through the Legislature. If the Legislature refuses to repeal the sales tax hike, Blackwell intends to take the issue directly to the voters by gathering sufficient signatures to place repeal of the tax increase on the ballot on Nov. 2, 2004.

President Ronald Reagan characterized politicians' natural predisposition as: "If it moves, tax it; if it keeps moving, regulate it; and if it stops moving, subsidize it." The Reagan dictum still holds, it seems, even if "it" moves over the Internet in data packets at the speed of light. Today, politicians at virtually every level of government are looking for ways to tax the Internet.

American politicians of both political parties are addicted to spending. And like any other addict, they will go to extreme lengths to procure the money to support their habit. In seeking to enable this addiction, Alexander, Voinovich and their fellow GOP spending addicts are playing a very dangerous political game. By poaching on the Internet, the last tax-free zone in America, they risk raising the ire of voters just as the nation enters a presidential election year.

Even worse, they risk slowing the new economy. Shouldn't we have at least one tax-free zone in our lives where politicians can't roam free to prey on taxpayers at the expense of economic growth?