With a federal moratorium on state and local Internet access taxes set to expire on Nov. 1, Senate Commerce, Science and Transportation Committee Chair Daniel Inouye (D-HI) withdrew a bill on Sept. 27 that would extend the tax moratorium rather than face the likelihood members would approve a Republican-backed permanent moratorium. Inouye said a compromise among those seeking an extension of the moratorium and those proposing a permanent ban had not yet been worked out. There has been no formal action in the House to date, other than a full Small Business Committee hearing on Oct. 3 on the potential negative impact on small businesses of allowing the Internet tax moratorium to expire. The Internet tax moratorium issue is being debated on the national level, but it would impact the revenues of states and localities. Nine states — Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington and Wisconsin — started imposing Internet access taxes similar to the taxes that appear on monthly telephone bills in the mid-90s. Then in 1998, Congress barred for three years any new state and local taxes on Internet access providers who bundle telecom products to consumers, including e-mail and digital subscriber line (DSL) services. The ban was extended until late 2003, then lapsed for over a year, during which time no states acted to institute new taxes. In 2004, Congress extended the moratorium through Nov. 1, 2007. The sentiment is almost universal in Congress that this tax moratorium should be extended again, but there are different opinions about the length of the extension. Many believe it is necessary to encourage continued investment in the high-speed lines crucial to making new online activities possible, particularly video. But changing Internet usage has complicated the issue, slowing the pell-mell rush to extend or make permanent a moratorium that has not slowed the United States' steady descent in the global rankings of broadband penetration. Senate Commerce Committee Ranking Member John McCain (R-AZ) and the Don't Tax Our Web coalition (an industry-funded coalition composed of telecommunications giants including AT&T Inc., Google Inc., Time Warner Inc., as well as the business-friendly U.S. Chamber of Commerce, National Association of Manufacturers, and American Legislative Exchange Council) seek to prohibit Internet access taxes permanently. The paradox regarding Internet access taxes is captured by McCain: "If Americans want to know what their access bill will look like if this moratorium expires, all they need to do is look at their phone bill. Taxes and government fees add as much as 20% to Americans' telephone and cellphone bills. We can't let that happen to the Internet, which is likely the most popular invention since the light bulb." Perhaps McCain forgets that access to telephones has not been hindered by long-accepted state and local taxes. Those opposing a permanent ban, led by the U.S. Conference of Mayors, the National Governors Association, the Council of State Governments, the American Federation of State, County, and Municipal Employees, and the National Association of Counties, worry about the estimated $11.7 billion that state and local coffers would lose annually and question the pre-emptive nature of the current federal law. They further claim because technology is changing, freezing tax policy in this area makes little sense. As Jean Kinney Hurst, head of tax and revenue policy for the California Association of Counties has said, "A permanent ban seems frankly completely irresponsible. We don't know what's going to happen with technology." Given this uncertainty, these groups endorse a four-year extension of the ban at this time. According to an August report from the Center on Budget and Policy Priorities, the current ban allows Internet access providers to escape a host of general taxes that other businesses must pay, such as sales taxes on equipment purchases. In addition, the taxes imposed by the nine states mentioned earlier have not adversely affected household subscriptions to access the Internet or the availability of broadband access in those states. Furthermore, each of the 14 developed nations that outrank the U.S. in broadband access have taxes on Internet access services — and at rates many times higher than the 4-9 percent applied by the nine states in the U.S. The U.S. ranked in the top five globally in broadband access prior to the ban in 2001, but has dropped to 15 out of the 30 Organization for Economic Cooperation and Development (OECD) nations in just six years. Unfortunately, the debate in Congress has hitherto involved surprisingly little examination of a singular and immodest moratorium enjoyed by a robust, thriving, well-capitalized and mature sector of the American economy. Typical of the rhetoric on the issue in Congress is this view, expressed by Rep. Anna G. Eshoo (D-CA): "There would be a revolution in the country if every time you went online you had to pay a tax. The dome of the Capitol would cave in." The debate will continue, but history shows that even if it is not resolved by Nov. 1, dire consequences will not follow. As a Senate Commerce Committee staffer noted last month, recalling the moratorium's one-year lapse in 2004: "As far as I can tell, the world didn't stop spinning."