Internet Companies to Get Clinton Answer in Tax Fight
Washington, Feb. 25 (Bloomberg) -- U.S. President Bill
Clinton heads to California to discuss how to promote electronic
commerce and will give Internet company executives an answer
tomorrow on whether he backs their efforts to bar state and local
governments from imposing new taxes on Web commerce.
The nation's governors want his help to collect taxes that
now elude them on Internet sales -- and head off any national
legislation that would limit their ability to tax such sales.
High tech company executives say taxes on cyber-commerce would
hobble the Internet's growth.
Clinton, who's signaled he opposes Internet taxes, has yet
to make a final decision, two White House aides familiar with his
views said. He's scheduled a breakfast tomorrow with high tech
industry leaders in San Francisco to discuss it, in advance of a
speech before the Bank of America Technology '98 Conference.
''The Internet is providing us with a new channel for
distribution, the benefits of which will far outweigh any short-
term gains you get from taxation,'' said Mark Green, chief
executive of Luckman Interactive, Inc., a Los Angeles-based
developer of interactive software for the Internet.
The industry needs a moratorium on new taxes ''to re-
evaluate how to deal with the Internet because it is changing so
quickly,'' Green said.
Green supports legislation sponsored by Sens. Ron Wyden, an
Oregon Democrat, John McCain, an Arizona Republican, and Rep.
Christopher Cox, a California Republican, that would put a five-
year moratorium on any taxes aimed at products sold over the
Internet. Deputy Treasury Secretary Lawrence Summers told
legislators in October that the administration supported the
goals and ''underlying objectives'' of the bill.
Already, Clinton has called on foreign governments to keep
the Internet a tax- and tariff-free zone.
''This is a really difficult issue,'' said George Bell,
president and chief executive of Redwood City, California based
online services Excite Inc., who plans to attend the Clinton
breakfast in San Francisco.
''If a guy in Bonn, Germany buys a book online from Barnes
and Noble, after finding a listing at amazon.com using Excite,
who pays the taxes?'' Bell said.
Clinton will use tomorrow's speech to push an international
initiative he introduced last July to keep what he calls the
''wild west of the global economy'' free of taxes and tariffs.
He'll also discuss the $110 million he set aside in his fiscal
1999 budget to develop Internet connections that are 1,000-times
faster than the ones used today.
Elusive Consensus
Leaders on Capitol Hill are divided over how to handle the
states' request for help in collecting what governors say will be
a valuable source of revenue as Internet sales mount.
''I want to have further discussions with the governors to
see if we can resolve their concerns before moving on the bill,''
said Senate Majority Leader Trent Lott, a Mississippi Republican.
Lott said he had already met with several governors about
the matter and intends to have additional discussions with them
along with fellow legislators. ''The governors have some
legitimate concerns that we should seek to address,'' Lott said.
The governors want legislation that would go in the other
direction: getting federal help in collecting taxes on Internet
sales.
Senate Minority Leader Tom Daschle says he doesn't expect
governors to get their national bill this year. ''I don't think
there is consensus yet about the best way to do it,'' he said.
Clinton's push for worldwide standards for regulation of
Internet commerce also has generated sparks. He's proposed
governments agree on regulations, terms and local tax provisions
that apply to any electronic sales over the Internet. In October,
during a trip to Buenos Aires, Clinton announced he had reached
an accord with Argentina and intended to bring up the issue with
other world leaders.
Since then, the U.S. and the European Union have clashed
over specific proposals for rules, notably relating to the issue
of whether to limit coding of Internet communications for secrecy.
A worldwide charter to regulate the Internet marketplace
would be worth about $220 billion by 2000, according to EU
estimates.
Symbolic Move
To be sure, Clinton's efforts to keep Internet trade free from
the hand of government regulation is largely symbolic because
electronic commerce is mostly unregulated and untaxed now.
''As a result of the current climate of regulatory freedom,
Internet-based electronic commerce is flourishing,'' said GE
Information Services' President and Chief Executive Harvey F.
Seegers last July. GE plans to sell at least $5 billion worth of
products over the Internet and save $500 million in costs over
the next three years.
What's more, Internet access questions are already covered
under international agreements on telecommunications and
technology concluded last year.
Even so, Clinton will tell the high-tech industry leaders in
San Francisco that he'll seek a consensus among a ''critical
mass'' of countries by Jan. 1, 2000 to keep the Internet
tax-free, the two Clinton aides said.
Clinton is banking he'll have better luck setting the rules
of engagement on Internet commerce than he has had in more
conventional trade corridors. Late last year, Clinton shelved his
efforts to get congressional passage of fast track trade
negotiating authority after he failed to round up sufficient
support from Democrats worried that jobs would move overseas.
Fast track allows Clinton to negotiate trade agreements without
congressional amendment.
Surveys show that about 60 percent of Americans think the
North American Free Trade Agreement, which turned the U.S.,
Canada and Mexico into a free trade zone, has hurt the U.S.
economy and sent jobs south. Clinton is trying to dispel those
perceptions.
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