Magazine article Nation's Cities Weekly

Tax the Net!

Magazine article Nation's Cities Weekly

Tax the Net!

Article excerpt

Reprinted from the May, 1999 issue of Upside Magazine

Electronic commerce has a dirty little secret: The numerous tax loopholes and pro-Internet policies accelerating its growth threaten to drain funding from public education, Medicaid, and other state and local services. Can the government continue to subsidize the Internet marketplace at the expense of the brick-and-mortar world?

Build a better mousetrap, the old saw goes, and the world will beat a path to your door. Building a better tax dodge, however, is probably a surer route to riches.

And what if--as with the Internet and electronic commerce--you can shield entire industries behind a fortress of impregnable tax breaks? Massive capital would flow in your direction as investors, always uncannily alert to tax breaks, abandon the stocks of your hapless brick-and-mortar rivals.

Welcome to the world's widest tax loophole.

No state sales tax. No Internet access tax. A moratorium on all new taxes for at least three years. This is the privileged paradise of e-commerce.

It is one of the great but unspoken ironies of modern business that the Web, noted for its vehement anti-government libertarian ethos, owes much of its wildfire success to a de facto industrial policy. Mention government action to protect children from pornography on the Net, and the Ayn Rand chorus starts to howl. Mention the various government efforts to subsidize the Net, and there are no protests, just the smug smiles of entitlement.

Few, of course, would deny that the Web brings superior efficiency to communications, information access and commerce. On its own merits, it would undoubtedly reshape countless sectors of business.

But the Web hasn't competed on just its own merits. The plain truth is that it has been tax-advantaged. That's why it is at least arguable that much of the Web's almost inexplicably rapid growth derives from its favorable political treatment These policy decisions have had a profoundly distortional economic impact, reshaping whole industries and redirecting investment capital from brick-and-mortar businesses to online businesses. …

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