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    An Unpopular Argument for Taxing the Internet

    Written by

    Adam Clark Estes

    A public event to bring Google Fiber to Grand Rapids, Michigan, in 2010. Image via

    A lot of things on the Internet are free, and it's awesome. Log in to Facebook, stalk some friends, post some inane updates, and you don't have to pay a penny. Head over to Gmail, send some messages, make some domestic phone calls, organize your inbox, and it's all on the house. Open up Twitter, do whatever people do on Twitter, and your grand total at the checkout is $0--all while the US Postal Service withers up.

    Right now, we pay for many of our Internet services with our eyeballs. Facebook, Google and Twitter are happy to provide us with some simple services, because the data we surrender helps them talk advertisers into forking over billions of dollars are year to support their services. So as advertisers brainwash us (, Internet companies gobble up their money, and governments—well, governments get left out in the rain, penniless and pained.

    So what would happen if we made some adjustments to the little triangle of trade on the Internet? What if we allowed governments to install a toll booth or two between the vertices and rake in a little bit of tax revenue from this increasingly ubiquitous service? To extend the metaphor a bit, taxing the Internet infrastructure would not be dissimilar from taxing physical infrastructure, i.e. roads and bridges. It costs money to maintain both infrastructures, and if we want to improve them, then that will cost money, too. And we do want to improve the infrastructure. Just this weekhe Federal Communications Commission chairman Julius Genachowski called for all 50 states to have at least one community with gigabit speed broadband services by 2015. That sounds stupendous. It also sounds expensive.

    The idea of an Internet tax is not a new one — nor is it a popular one — but it's also not going away. Around the time that the FCC called for an upgrade to the U.S. Internet infrastructure, a report commissioned by tax-happy French President François Hollande proposed a tax on personal data that's exchanged over the Internet. Broadly speaking, this would mean that companies like Google and Facebook would have to pay a duty on the data they collect from their users. The report describes this personal data as the "raw material" of the digital economy and they're not too far off. Without this data, these companies wouldn't be able to bring in the billions of dollars in ad revenue that they do on an annual basis — Google pulls in about $2 billion a year in France alone — and you wouldn't see any sweet personalization features on the web. 

    The French president wants to tax data collection online

    The upside of establishing a new tax on data mining isn't immediately apparent, but it's there. From the international governments' point of view, it's a way to collect billions in lost revenue from Internet companies' sneaky habit of routing international revenue through tax havens in order to avoid paying fewer taxes. Internet companies aren't the only ones to take advantage of these loopholes, but they are some of the most valuable companies to do so. And recently, European nations like France and the United Kingdom are cracking down on the questionable accounting practices in an effort to keep these companies honest. As France's digital economy minister Fleur Pellerin put it in an interview with The New York Times, "We want to work to ensure that Europe is not a tax haven for a certain number of Internet giants."

    At stake also are consumers, even if the average Internet user probably doesn't, at first blush, have any reason to care about whether or not Google pays all of its taxes. But as the U.S. and other countries push to upgrade their networks as a public service, one has to wonder where the money's going to come from. To install Google Fiber 's gigabit Internet service across the country , for instance, and then we're stuck with Internet service that's completely owned by Google.

    To ensure equal access to an Internet connection and to avoid the corporate Big Brother scenario, at least 133 U.S. cities have built their own broadband networks. The Institute for Local Self-Reliance says that this strategy seeks "to maximize value to the community in which they are located rather than to distant stockholders and corporate executives." It only makes sense that citizens would pay a few extra bucks to Uncle Sam each year to keep these networks running smoothly. This is a weapon against overbearing and annoying corporate control over the digital highway, a way to ensure the net neutrality that will keep the Internet as open and fair as we want it to be.

    Here's a dirty little secret, though: We already tax the Internet. There are, however, strict limitations on how we do it. The United States decided almost 15 years ago, after a number of Internet tax proposals had been floated in Washington, that most activities online should remain tax-free in order to promote the Internet's commercial and education potential, despite the fact that this robs state and local governments from potentially lucrative revenue streams. Though it varies by state, there are a number of duties in place that show up on the bill from your Internet service provider (ISP) as "service charges." These vary from taxes on access itself to franchise taxes levied on the service providers, but the types of metered tax structures that France has proposed are explicity banned under the Internet Tax Freedom Act. This is the Internet equivalent to a ban on toll roads in order to promote the Interstate.

    Think about it this way. Just as toll roads tend to be smoother than free roads, quality Internet service is going to cost you either way. Google's already shown that it's well prepared to charge at least $70, or up to twice what other ISPs charge for its super awesome gigabit internet service. Verizon already does it with their fairly fast FiOS service. When Time Warner, Comcast and friends catch up, they're going to charge you more, too. Installing new regulations that allow the government to tax Internet companies based on the data they cull from their users would inevitably trickle down to the consumer as well. Maybe Google shows you more ads or Facebook charges a membership fee for a premium version of the service. But if these new regulations keep control of the Internet out of the hands of giant corporations and improves access, wouldn't it be worth it?

    Many would argue that the tax approach betrays what the Internet stands for: the free on open exchange of information around the world. The alternative sounds basically horrifying. If you pay attention to recent protests against greater regulation of the web, though, you'll see that it's the giant corporations that are leading the charge. And while they're flying the flag of Internet freedom, they also have their bottom line in mind. So is it better to have a Google-powered Internet or a government-mandated one? It's really tough to speculate what would happen in either contingency, which path would lead to more freedom. One thing is for sure, though. The Internet is not actually free. It costs money to lay cable and power servers, and whether you want Google to pay for it or the government, you're going to be in debt regardless.

     

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