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Don't miss the big Internet tax precursor in the Republican Senate Leadership changes

While everyone is understandably focused on the changes in Congressional leadership on the Democratic side, arguably one of the most significant potential changes that directly affects the bottom lines of all Internet-related companies and the future of the Internet could be the ascension of Republican Senator Lamar Alexander (TN) to be the Senate Minority Whip, because he is one of Congress' biggest proponents of ending the Internet Tax Moratorium when it expires in 2007.

Why am I flagging this as potentially a very big deal for the Internet world?

First, Senator Alexander, a former Governor of Tennessee, disagrees with the bipartisan and Republican consensus of the last decade that the Internet is inter-state commerce and as such should not be subject to state and local taxes. Sen. Alexander has worked harder than just about anyone in Congress to authorize States and localities to tax the Internet. Why this matters is that any Washington insider knows that tax issues are generally negotiated at the Congressional leadership level and the interests and knowledge of particular leaders can have a very big impact on the policy outcome -- that's why they are leaders. 

Second, adding a new Senate leader, whose pet issue is to end the Internet Tax Moratorium, with the already combusible mix for the Internet of the Democratic takeover of Congress and Democratic support of net neutrality, and one gets a potentially very volatile environment for future taxation and regulation of the Internet. Given the importance of the Internet and broadband to the U.S. economy, and that there is a wide open race for the White House in 2008, this is a potentially very big deal indeed.

Third, it's instructive to remember that there used to be a powerful bipartisan consensus around not taxing or regulating the Internet. However, that bipartisan consensus on the Internet began to crumble last spring when the online giants and made net neutrality regulation a big issue in the telecom reform legislation. The question now is will that consensus -- to not screw up the Internet -- crumble even more, if the Republican leadership potentially lessens its support for not taxing the Internet?

Lastly, for those who miss the connection between Internet taxation and net neutrality regulation, the 2004 Senate bill that extended the Internet Tax Moratorium was called: "The Internet Tax Non-Discrimination Act" (S.150) . Yeah, there is that buzzword-blackmail, "non-discrimination" word again. Like it or not, these issues are highly inter-related politically and highly volatile.

To wrap up, I will be curious to see the contortions the online giants will have to go through to continue to justify new net neutrality regulation for Internet access, while also arguing vociferously against Internet taxation of their online commerce.

  • The online giants Washington naivete on the poltical inter-connectedness of Internet taxation and regulation, has helped put all Internet commerce at much greater risk of big taxation in the future.
  • Nice job Google, Microsoft, eBay, Yahoo, Amazon, and IAC -- you've really stepped in it this time. Have fun explaining to your shareholders how your hubris and naivete in Washington put your online commerce franchises at risk. Â Ã‚ Ã‚ Ã‚ Ã‚