Congress Proposes Tax on all Net, Data Connections

Abstract

A report prepared by the Congressional Joint Committee on Taxation proposes extending a 100-year-old tax on phone service to some or all data connections. The tax originated in 1898 to pay for the Spanish American War. After being repealed, it was reinstituted to pay for World War I and was eventually set at 3 percent. With the decline of traditional phone service, the committee is investigating ways of adding to federal tax revenues. The report outlines several approaches to an extension of the tax, including one that would levy the 3 percent rate on all data communications. The report says, "Extending the tax to all communications requires taxing Internet access, bandwidth capacity, and the transmission of cable and satellite television." James Maule, professor of tax law at Villanova University, is skeptical that Congress would push for such an extreme measure. He suggested that the committee's goal of including that as one option is to make the others "look a bit more palatable."