Internet Tax Freedom Still Matters Today
In 1997, Congress passed the Internet Tax Freedom Act to prevent a chaotic patchwork of state and local taxes from stifling the growth of the internet. The goal was simple: ensure that digital commerce and internet access remained free from discriminatory levies. For nearly three decades, this policy encouraged growth and maintained market neutrality, preventing governments from treating online activity as a unique target for revenue collection.
Today, that bipartisan consensus is fracturing. Legislators at both the state and federal levels are increasingly viewing the internet as a source of untapped revenue. From taxes on digital advertising and video streaming to levies on social media data, the list of digital-specific taxes is growing. Maryland and Illinois stand as prime examples, where new laws targeting online transactions have led to long-term litigation and higher costs for consumers. These policies ignore the original spirit of the Internet Tax Freedom Act, which aimed to stop the very economic distortion these taxes now create.
We are currently seeing a new push for taxes on compute, which would essentially tax the processing power that drives artificial intelligence and standard web browsing. Proponents suggest this will slow AI or fund compensation for displaced workers. This logic falls short because it ignores how markets react to such burdens. Taxing computing power acts as a barrier to productivity, encouraging businesses to move their research and development to jurisdictions without these restrictions. This does not address the underlying economic shifts but instead penalizes domestic innovation.
Despite the sophisticated political framing used by proponents, the economic reality remains unchanged since 1997. The Internet Tax Freedom Act was designed to prevent governments from discriminating against digital channels in favor of analog equivalents. By ignoring these principles, lawmakers are undoing a successful quarter-century of policy that allowed the digital economy to flourish. Protecting the internet from discriminatory taxation is just as critical today as it was when the act was first signed into law.