Another reason not to trust Congress...

As we know, tax revenues in the US are at an all-time high. The federal deficit is well on its way to disappearing, structurally, as the growth of tax revenues exceed federal outlays: despite - I will say because - the Bush tax cuts.

So what does Congress, in its oh so infinite wisdom, want to do?

Well, step back a moment. What drives incomes, what makes it possible for the government to increase its tax income without actually raising taxes?

Growth, economic growth. Without it, taxes become more onerous than they are: taxes become a zero-sum game, taking more away than you can hope to earn.

What has been a major, driving force in economic growth in the US? While I could have to write a PhD thesis to prove this, my fundamental take is that growth in the US, economic growth, the creation of wealth, has been in no small part driven by the easy and prolific use of the Internet to acquire and process information. I know that research that used to take me days in the library, tediously photocopying historical data, entering by hand into spreadsheets, can now be downloaded in a matter of seconds, making me significantly more productive.

So, what does wealth creation have to do with Congress being less intelligent than usual?

They want to tax the Internet.

We know that Congress is full of idiots: it's almost a definition. Their approval rating is even lower than the President's, and that really, really takes some doing.

Fundamentally, any sort of consumption tax, such as a sales tax or Value Added Tax (I pay 19% tax on virtually everything I buy in Germany!), is highly regressive, since those whose incomes go completely for consumption (i.e. lower income groups) are disproportionately taxed in comparison to higher income groups whose incomes allow them to save and/or invest.

The apparent goal of the introduced legislation is basically to level the playing field and force the collection of sales tax regardless of the distribution channel. Senator Enzi, from Wyoming and a Republican, apparently sincerely believes this is a good thing: he's, sorry to say, so wrong that it begs disbelief to think that he actually thought this thing through.

The Democratic Party is infamous as a tax-and-spend party: they may be able to actually bring this outside of committee.

Talk about killing the goose that lay the golden egg.

But this isn't bad enough: they also want to tax your access, basically as they now tax your basic phone service. These kinds of additional taxes are as large as over 17% of the basic service: not exactly peanuts.

But this indicates how completely clueless the Internet Tax people are:

Harley Duncan, the executive director of the Federation of Tax Administrators, said Wednesday that higher taxes will not discourage broadband adoption and his group "urges Congress not to extend the Act because it is disruptive of and poses long-term dangers for state and local fiscal systems."

Increasing the price of broadband Internet access by taxes won't discourage adoption? I guess he skipped his econ studies and never learned anything about elasticities of demand.

Any developed economy needs broadband reaching the greatest number of people to increase the utility of the Internet and its usage. Instead of supporting - and even subsidizing - inexpensive access, these folks want to tax it instead.

Remember, tax revenues are at an all-time high: taxing it would be regressive, not progressive.

This is another reason not to trust Congress...