Tax-free Internet means fewer IT workers

If anything demonstrates how profoundly the Internet is revolutionizing

American political and economic life, it's the issue of whether the Internet

should be a tax-free zone.

The Senate Budget Committee held a contentious hearing early last month

on this subject. The hearing discussed the 1998 Internet Tax Freedom Act,

which imposed a three-year moratorium on new Internet state and local taxes.

Governors took opposing sides on the issue.

The Clinton administration has said it opposes any taxation of the Internet

and is urging other nations not to impose taxes on electronic commerce transactions.

The information technology industry, of course, is solidly lined up in the

ranks of tax-free Internet proponents.

So who suffers if the Internet remains tax-free? The states are a major

victim. They lose retail sales taxes. When people buy merchandise over the

Internet, they do not pay a state sales tax, which they would typically

pay if they bought the same merchandise from a bricks-and-mortar retail


The National Governors' Association estimates that by 2002, Main Street

stores will lose more than $76 billion in sales annually to e-commerce,

and states will lose the associated sales taxes on that figure. The sales

figures are increasing faster than projections can track; each year brings

new electronic sales outpacing last years' forecasts.

The problem is that sales taxes make up almost half of states' revenues.

In terms of expenditures, states spend about one-third of their budgets

on education. As they lose sales tax revenue, they will have less money

to spend on education; states will have less money to spend on educating

the IT workers the Internet economy so desperately needs.

Current "guesstimates" say the United States has 400,000 vacancies for

computer programmers, systems analysts and other IT specialists, many of

whom are in the federal government.

Nationwide, according to the Information Technology Association of America,

about one IT position is vacant for every 10 IT employees working at large

IT companies. Two-thirds of IT companies cite a lack of skilled or trained

workers as a barrier to their future growth. The Commerce Department calls

the IT worker shortage "America's new deficit."

In a recent speech on technology and the economy, Federal Reserve chairman

Alan Greenspan cited the draw-down on the pool of available technology workers

as a key barrier to continued economic prosperity.

By 2005, the U.S. will need more than a million new computer scientists

and engineers, systems analysts and computer programmers.

And there is nowhere to get them. If every college student today switched

his or her major to computer science, the U.S. still would not have enough

IT workers to keep up with the demands the Internet economy continues to

make. Lowering migration barriers might help some, but it won't help enough.

The Internet tax issue is a thorny paradox for American society and

the federal government. Popular political sentiment seems overwhelmingly

in favor of keeping the Internet tax-free. Yet the more e-commerce replaces

Main Street commerce and the more that state sales tax revenues decrease,

the fewer resources states will be able to devote to creating the work force

that sustains e-commerce.

We need more money devoted to IT work force education, certainly not

less, if high technology is to continue to serve as the engine of prosperity.

Sprehe is president of Sprehe Information Management Associates, Washington,

D.C. He can be reached at [email protected]


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