As a North Carolina resident, I was disheartened to learn of our legislators’ decision to tax Internet affiliate marketing revenue. While the state may be an early adopter of such a practice, it does not bode well for the future. States are like dominoes – if one state finds a successful way to generate tax revenues, it’s only a matter of time for the others to fall in line.

From a practical perspective, it’s not hard to understand the current financial mess the states are in. The federal government has all but abandoned them. When businesses aren’t making money and consumers are keeping their cash instead of spending it, tax revenues dry up. It’s simple: States need to find new and creative ways to get money in their coffers. Never mind the fact that they may waste funds on questionable projects or allocate dollars for politically motivated reasons.

But here’s the problem: The Internet is not merely a sales channel – it has become the repository of our nation’s and the world’s information, and the engine of our nation’s and the world’s economy. As such, its value must be recognized as above and beyond something a state should be able to arbitrarily tax.

Harvard Business School Professors John Deighton and John Quelch, writing in AdAge, offer some startling statistics from a study they prepared with Hamilton Consultants for the Interactive Advertising Bureau:

  • Roughly two percent of Americans are directly or indirectly employed in jobs that support the Internet. The dollar value of their wages is about $300 billion.
  • The Internet directly pours about $175 billion into the U.S. economy – but it influences economic activity that creates an annual value of $444 billion.
  • About 190 million people in the United States use the Internet an average of 68 hours per month. The value of this time, conservatively speaking, is about $680 billion.

Deighton and Quelch also discuss the Internet’s impact on job creation, telecommuting, and society through social networks and online communities. The implications go far beyond the economic impact of the Internet.bDeighton and Quelch conclude with this point:

“When regulators start trying to constrain the Internet, let’s be aware of its enormous and ever-increasing economic and social impact. The Internet is an economic powerhouse that drives U.S. competitiveness and productivity.”

Each state and the federal government should think long and hard before they mess with that.


Originally posted here:
A Case for Free Enterprise