FC: Tax the Net! Report from Capitol Hill...

[Declan McCullagh <declan@well.com>]

************

Date: Fri, 9 May 1997 21:57:45 -0400
To: fight-censorship-announce@vorlon.mit.edu
From: Declan McCullagh <declan@well.com>
Subject: FC: Tax the Net! Report from Capitol Hill...
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So I'm sitting in this rundown basement meeting room in the
Rayburn House office building listening to a bunch of DC
policy wonks spout off about Internet taxation. Too bad
I'll have to wait to get back to the bureau to log in.
Gotta get Strosser in Purchasing to get me that radio
modem. It'll be great for playing networked Quake when
Senate Judiciary hearings are yawners.

Bruce Cohen from the Treasury Department is speaking.
Horn-rimmed glasses, nondescript blue suit, definitely a
geek. Tries a joke: "I hope there are no criminal tax
evaders in the audience." It flubs; folks glance at each
other nervously. I lean over to the guy from Cox's office
next to me and whisper, "I guess that's IRS humor." He
deadpans, "For what it's worth."

Cohen is praising a Treasury Department white paper
released last fall that says basically "No New Net Taxes."
That's true. But you have to read the fine print. Which I
did. That's where one finds the very clear suggestion that
existing tax laws must be extended to encompass the
Internet -- in the kind of clumsy and misinformed way that
has typified federal forays into legislating online
behavior.

"We have a tax system based on a 19th century model of
industry," Cohen continues. "Cash poses problems for cash
administrators. Electronic cash poses additional problems."

It does. The guy from IBM admitted a couple minutes ago
that if I buy _physical goods_ over the Net and have 'em
shipped to my zip code (20036), then the usual taxes should
apply. Just like mail order. But problems arise when the
product sold is virtual. If I buy a copy of an email
program from Poland, pay for it with digital cash from an
Amsterdam bank, and get a partial refund from a firm in
Singapore, which government taxes what? No wonder the
Internet Caucus decided to organize today's luncheon.
Everyone on the Hill's still scratching their heads.

Now Americans for Tax Reform's Jim Lucier (a longtime f-c
subscriber) is at the podium. He recommends "reengineering
the tax code" to address some of the unique aspects of the
Net. A steely silence descends on the room. Okay, that
ain't gonna happen. Too bad. Lucier is one of the few folks
in the room who has a clue about the Net.

To be sure, cypherpunks have anticipated these regulatory
problems for years. I remember Lucky Green, a digital cash
guru and veteran 'punk, stopping by my apartment last
summer. Over beers, we talked crypto-anarchy: as more and
more transactions move online, as more folks become
"knowledge workers," as they get paid in foreign e-cash for
writing or hacking code, the Feds' ability to tax income
(and virtual spending) will suffer.

But that doesn't mean taxes disappear. (Yeah, I know. What
a shame.) Governments always will be able to tax physical
purchases and meatspace property. When I buy a loaf of
bread at my favorite organic grocery down on Columbia Road,
the Man can monitor the grocer to ensure he reports the
transaction. Or property taxes: governments will always be
able to extract 'em. Taxes will shift from income to sales
and property.

Things are winding down. Aaron from White's office is
asking for questions. Embarassed silence. Nobody asks any.
Is it because nobody understands the stuff or because
everybody understands the stuff?

Time passes. Yep, the silence is definitely caused by
nobody wanting to sound stupid. Aaron gives up. The
panelists get to ask each other questions instead. Lucier
starts rambling about the economics of tax policy, but
nobody can understand, so we all ignore it.

Then Mark Rhoads, the guy supposedly representing the state
legislators, stands up. He says the only funny thing of the
afternoon: "I worked for Dirksen when he wasn't a
building." Or something like that. Maybe you had to be
there.

Anyway, he doesn't like the Cox-Wyden bill that would
prevent states from taxing the Net: "I'll give you a
nightmare scenario. What if you had a garage sale and
invited 80 million people to your garage sale. I happen to
be a collector of antique plates. The efficiency the
Internet creates allows me to find people. The
complications involved in taxing that at either the federal
or state level are amazing."

Anyone want to bet that's going to stop 'em from trying?

-Declan



-------------------------
Declan McCullagh
Time Inc.
The Netly News Network
Washington Correspondent
http://netlynews.com/


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