Clinton Vows No New Taxes on Internet
Promising a “hands off” policy aimed at promoting commerce in cyberspace, President Clinton on Tuesday said federal officials will work to keep the Internet free of taxes and red tape so the global computer network can foster economic growth worldwide.
“If we establish an environment in which electronic commerce can grow and flourish,” Clinton said, “then every computer will be a window open to every business, large and small, everywhere in the world.”
The new policy, announced at a White House ceremony attended by Clinton, Vice President Al Gore and a bevy of high-technology executives, is the latest example of an increasingly harmonious relationship between Washington and Silicon Valley.
The 30-page report, titled “A Framework for Global Electronic Commerce,” was hailed by Internet denizens already giddy from a Supreme Court ruling last week that struck down a federal effort to regulate indecency on the Net.
“We are quite pleased with the way this all turned out,” said Glenn Osaka, a vice president of Palo Alto-based Hewlett-Packard Co. participating in the ceremony. “Essentially what the administration has done is tossed the ball back into our laps.”
But despite the backslapping mood, deep divisions remain between the administration and industry leaders on such thorny issues as government’s role in controlling encryption technologies used to scramble electronic communications so they can’t be deciphered by others.
The administration also faces an uphill battle overseas, because foreign officials are expected to resist Clinton’s calls for a ban on new Internet taxes, as well as quotas on foreign content and restrictions on Internet advertising.
The report acknowledges those issues will raise “legitimate cultural and social concern” in the international community.
In the U.S., the plan is expected to meet opposition from state and local representatives who have been hard at work on Capitol Hill trying to undo some of Clinton’s Internet policy initiatives.
“It is one thing to propose no new federal taxes, but quite another to extend this federal view to state and local governments,” said Paul Helmke, mayor of Fort Wayne, Ind.
Last week, the U.S. Conference of Mayors and other groups pressured Sen. Ron Wyden (D-Ore.) to delay consideration of a measure that would suspend state and local taxes on Internet commerce and services. The Senate Commerce Committee tabled a scheduled June 26 mark-up of Wyden’s bill, the Internet Tax Freedom Act. Senate staff members declined to predict when the bill will come before the committee again.
Even officials of some states that support the administration’s position opposing new Internet taxes worry that the hands-off approach might undermine their ability to collect existing levies.
Ernest J. Dronenburg Jr., chairman of the California Board of Equalization, estimated that the state loses $200 million annually because most California residents fail to pay sales taxes on goods ordered from out-of-state mail-order firms. That amount could rise if the Net continues to capture a growing share of retail sales, a prospect the White House considers inevitable.
“Commerce on the Internet could total tens of billions of dollars by the turn of the century,” the report said.
Sensing the difficulties that lie ahead, U.S. Trade Representative Charlene Barshefsky on Tuesday backtracked from a published report that the administration planned to jump-start its Internet policy overseas by petitioning the World Trade Organization to declare the Internet a tariff-free zone for the sale of goods and services.
Instead, Barshefsky said, “We will pursue this by talking to individual trade partners. We are not going to approach WTO for an international trade negotiation.”
In his announcement, Clinton moved to placate fears that the freewheeling Internet might careen out of control without tight government oversight.
“In many ways, electronic commerce is like the Wild West of the global economy,” said a sympathetic Clinton. “Our task is to make sure that it’s safe and stable terrain for those who wish to trade on it. And we must do so by working with other nations now, while electronic commerce is still in its infancy.”
Industry leaders agree with Clinton that ensuring the Net’s safety and stability is critical for the global network to become a truly mass medium. But on some issues, the two sides remain divided on how to accomplish that.
Though the final report took a more conciliatory tone on encryption than earlier drafts, it restated the government’s concern that advanced scrambling technologies “can also be used by criminals and terrorists” to evade the surveillance of law enforcement.
For that reason, the Clinton administration has restricted the industry’s ability to export its best encryption software, which these days is included in everyday programs such as Web browsers. That has angered industry executives, who see sales slipping into the accounts of overseas rivals unfettered by such policies.
“The industry is uniformly opposed to the administration’s policy on encryption,” said John Gage, chief scientist at Sun Microsystems Inc., who also participated in the White House ceremony.
William Reinsch, undersecretary of commerce for export administration, stressed that the government has made significant concessions--from abandoning plans for a universal key to unlock all encrypted messages to a recent loosening of the export policy.
“There’s been a lot of compromise already, but it’s all been on our side,” Reinsch said. “We have to balance a variety of equities. Electronic commerce is one of those, but so are law enforcement and national security.”
Times staff writer Elizabeth Shogren also contributed to this report. Shiver and Shogren reported from Washington and Miller reported from San Francisco.
