The Specter of Internet Taxation

As the U.S. Postal Service closes 53 processing plants to trim $2 billion from its bloated budget, government officials - who earlier floated ideas to suspend Saturday service - look for other ideas to balance their budget. While USPS handles 40 percent of all the mail delivered in the world, it lost $15.9 billion last year with revenues of $65 billion. What’s more, its unfunded pension liabilities are nearly $50 billion.

Instead of privatizing the postal service - which would allow it to compete with FedEx and UPS, who seem to be able to make profits even up against a subsidized postal service - a California city councilman is proposing a tax on email as a fix:

Berkeley City Councilman Gordon Wozniak brought up taxing emails during a recent council meeting. He suggested the money collected, which would be part of a wider-reaching Internet tax, could be used in Berkeley’s case to save the local post office.

“There should be something like a bit tax,” he said during the March 5 meeting. “I mean, a bit tax could be a cent per gigabit and they would make, probably, billions of dollars a year.”

Plus, he said, there should be a “very tiny tax on email.”

The idea is basically this: The coming electronic age of communication is making the Post Office obsolete, so let’s tax electronic communication to make up for lost revenues.  But since you can’t email things like prescription medication and carburetors, there will always be a market for physical mail, and the Post Office should adapt to this changing environment.

In itself, taxing email is a goofy proposal by one city councilman in arguably the most leftist city in the United States, with tremendous logistical challenges, and should therefore be ignored. But the idea garnered much media attention, and considering that Marketplace Fairness Act - which Forbes calls an “ineveitable” online sale tax - passed the Senate last week, the idea should give us pause. Former Congressman Ron Paul, writing this week, calls the Act an “Internet Tax Mandate.” Indeed, other nations - most notably France - are proposing similar Internet taxes.

Luckily, a prescient Congress passed a federal ban on such a taxation in the 1998 Internet Tax Freedom Act, which has been expanded thrice. But as this law expires November 1, 2014, special interests will undoubtedly line up on either side in the “nonmarket,” the way they did over UPS’ “Brown Bailout,” aka the 2010 FAA Reauthorization Act, which you can read about at FedEx’s website, brownbailout.com.

Lobbyists will likely join the fight, the way they did with Internet wine sales, which placed a sales tax on wine in the state in which it is ordered. Ever wonder why you can buy wine online, but not beer? That’s because beer has no such lobby.

I digress. As a society, we know what kind of information is sloshing around the Internet: when, where, and how much. The metering of data by private companies is evidence that monitoring volumes of email traffic is now easier than it ever has been.

But of any sector of the economy, it makes the least sense for Congress to try to be involved in Internet technologies, as innovation often outpaces even the reactive nature of Congress. However, because of the market capitalization of all firms across the space, Congress - as always - sees dollar signs with new activity.

Ultimately, taxing an activity is no way to fix it. Why not, instead of taxing email and/or the Internet, do what Professor Stephen Carter recommends, and sell advertising space on postal stamps? This would allow at least some market forces to intervene so the Post Office can begin righting itself without altering the regulatory environment, while leaving. The Internet. ALONE.


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