Tens of thousands of Hungarians rallied to protest a proposal to create a tax on internet usage in Hungary. In response to the first protest on Sunday, the Hungarian government limited its proposal.
Today the House Judiciary Committee voted to approve legislation to permanently extend the moratorium on taxation of internet access.
The bill, titled the Permanent Internet Tax Freedom Act, would make permanent the current internet tax moratorium that prevents states and localities from levying taxes on access to the internet. It would also eliminate a grandfather clause that currently allows seven states to tax internet access.
The Internet Tax Freedom Act was first passed in 1998 and has been extended three times, in 2001, 2004, and 2007.
A tax on internet access has the potential to damage a growing sector of the economy. The internet tax moratorium prevents that potential economic damage. The internet economy is projected to account for 5.4 percent of U.S. GDP by 2016 and a similarly sized share of the G-20 economy (5.3 percent of GDP). It is important to allow that sector to flourish.
Additionally, there doesn’t seem to be a good reason to tax internet access in the first place. Governments tend to levy taxes on goods or services as a way of correcting for an externality or paying for the costs of a provided service.
The internet does not create any evident externalities and may, in fact, have positive externalities associated with it. Additionally, state and local governments don’t seem to be providing any services associated with internet access.
Now that the Permanent Internet Tax Freedom Act is passed through the committee, it will move to the House floor and, if passed, on to the Senate.
The existing moratorium on taxation of internet access expires on November 1st of this year.
Join the Tax Foundation's fight for sound tax policy Go
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
In the past three decades, the importance of “pass-through” businesses has grown substantially. The combined net income of sole proprietors, LLCs, Partnerships, and S corporations has increased fivefold and now accounts...