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Data, Net tax plan divides Republicans

A tax created to pay for Spanish-American War could be extended to all data and Net connections. But not all Republicans love the idea.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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Declan McCullagh
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A recent congressional report saying that new taxes could be levied on all Internet and data connections is pitting two influential groups of Republicans against each other.

Sixteen members of Congress have slammed a suggestion from Congress' Joint Committee on Taxation that a tax originally created to pay for the Spanish-American War could be extended to all Internet and data connections this year.

In a letter to the committee sent Tuesday, the House members said they were "perplexed" that the committee would "gratuitously suggest tax increases" that would slow the growth of the U.S. economy. The committee is headed by two Republicans, Sen. Charles Grassley of Iowa and Rep. William Thomas of California.

"Consumers who now enjoy freedom from regressive taxes on Internet access are not tax cheats," the letter says. It charges the committee with finding ways to justify tax hikes when its report was supposed to be about identifying people who were dodging taxes.

"I think the problem lies not with the senators but with staff that is involving itself gratuitously in proposals to raise taxes on the Internet," Rep. Chris Cox, a California Republican who signed the letter, said in a telephone interview with CNET News.com.

George Yin, the tax committee's chief of staff, was not immediately available for comment.

Currently, the 3 percent excise tax applies only to traditional telephone service. But because of technological convergence and the dropping popularity of landlines, the Joint Committee on Taxation said extending the century-old tax to broadband and data links was an "option."

The committee's report, published in late January, said that tax law could be rewritten so the telecommunications levy would cover "all data communications services to end users," including broadband; dial-up; fiber; cable modems; cellular; voice over Internet Protocol (VoIP) and DSL, or digital subscriber line, links. Another option it listed was extending the tax only to VoIP providers, including Internet-only ones like Skype.

Congress enacted the so-called "luxury" excise tax at 1 cent a phone call to pay for the Spanish-American War back in 1898, when only a few thousand phone lines existed in the country. It was repealed in 1902, but was reimposed at 1 cent a call in 1914 to pay for World War I and eventually became permanent at a rate of 3 percent in 1990.

Republicans signing the letter to the tax committee include Chris Cannon, R-Utah; Walter Jones, R-N.C.; Chip Pickering, R-Miss.; Ron Paul, R-Texas; Jeff Miller, R-Fla.; Mark Foley, R-Fla.; Mike Rogers, R-Mich.; Fred Upton, R-Mich; Patrick McHenry, R-N.C.; Jerry Weller, R-Ill.; Rob Simmons, R-Conn.; Charles Bass, R-N.H.; and Vito Fossella, R-N.Y.

Two Democrats, John Lewis, D-Ga. and Anna Eshoo, D-Calif. also signed the letter.

Members of the Joint Committee on Taxation include Orrin Hatch, R-Utah; Max Baucus, D-Mont.; John Rockefeller, D-W.Va.; and representatives Bill Thomas, R-Calif.; and Charles Rangel, D-N.Y.