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Showdown Over Tax Moratorium

In the Senate battle over who hates taxing the Internet more, it may come down to which Senator or Senators blinks before the current temporary ban on taxing Internet access expires Nov. 1.

And with that deadline fast approaching, both proponents of a temporary moratorium and a permanent ban on taxing Internet access are talking tough and hinting at a filibuster of the other side’s proposal.

“Last time, those of us who didn’t want unfunded mandates on the states stopped the legislation, and we’ll do it again,” said Sen. Lamar Alexander (R-Tenn.), the co-sponsor of a bill to bar Internet taxation for just four years. Alexander and his supporters blocked a permanent ban from coming to the floor last year.

Though Sen. John Sununu (R-N.H.) appeared to have the votes for a permanent ban last week in the Senate Commerce, Science and Transportation Committee — before Chairman Daniel Inouye (D-Hawaii) pulled the bill from the agenda — Sununu ominously predicted a temporary ban would not get much traction in the Senate.

“If it’s just a short-term stopgap, they’re not going to have the votes on the floor,” he said. Still, Sununu stopped short of threatening to force proponents to overcome the 60-vote hurdle imposed by an attempted filibuster.

Senate Republican leaders entered the fray on Tuesday by introducing a bill that would permanently ban the tax. But there’s no guarantee it would come up for debate.

Unfortunately for both sides, one of the fastest and easiest vehicles to the president’s desk slipped through their hands when a stopgap spending bill to keep the government running in lieu of appropriations bills passed last week. In the absence of a fast-moving bill like that, Senate action could take weeks if the two sides are unable to reach an accord.

Senate Majority Leader Harry Reid (D-Nev.) seemed to indicate on Tuesday he is not interested in having all of the Senate’s time eaten up by Internet taxation.

“It’s something that I think we’re going to have to do. But there are a number of other things that we have to do,” Reid said, listing a litany of time-consuming measures from the farm bill to foreign terrorist surveillance.

One Senate Democratic leadership aide said Reid will make a decision on when to bring it to the floor after Commerce marks up a likely six-year moratorium — something Inouye said he wants to do after next week’s Senate recess.

On the surface, the differences between the two sides appear slight, but they clearly constitute enough to potentially cause the current ban to expire without action.

Sununu said some supporters of a temporary ban “want to reserve the right to tax Internet access” in the future. But Alexander argued that a permanent ban would tie Congress’ hands and present potential state taxation problems. “No one can anticipate what the definition of Internet access will be four or five years from now,” he said.

So far, it appears that Alexander and his partner, Sen. Tom Carper (D-Del.), have a slight upper hand, considering that not even the telecommunications industry is agitating for a permanent ban right now.

Broderick Johnson, coordinator of the Don’t Tax Our Web coalition of telecommunications companies, acknowledged that the industry would be content with a short-term moratorium.

“We have pretty well communicated our strong preference for a permanent moratorium. … Nevertheless, we want to make sure the moratorium doesn’t expire,” Johnson said.

Johnson said the key was to not let the moratorium expire at all, because some states, such as Montana, have laws in place that require them to start collecting taxes if it expires.

Meanwhile, supporters of the temporary bill said they are incredulous that they are at a stalemate with Sununu and others, when the industry has already agreed to a six-year moratorium. “We’ve heard from the telecom community that they’re more interested in getting a bill done than fighting about this,” said one senior Senate Democratic aide.

But the industry’s ambivalence on the issue is not necessarily going to stop supporters of the permanent ban.

“They are possibly the worst coalition I’ve ever seen. They’ll take anything,” said one aide to a Republican on the Commerce panel about the “Don’t Tax Our Web” coalition. “They haven’t drawn a line in the sand and said, ‘This is what we want.’”

A four-year moratorium appeared on a glide path to the Senate floor earlier this year. However, talks between the two sides broke off at the end of August, according to sources in both camps, over whether to continue to grandfather a handful of states that began taxing Internet access prior to the original moratorium in 1998.

When proponents of a permanent ban couldn’t get moratorium supporters to go for a gradual phase-out of the grandfathering, they began to dig in their heels for a permanent ban and started looking for more Democratic votes in committee.

Anticipating that Commerce members Barbara Boxer (D-Calif.) and John Kerry (D-Mass.) would vote with all Republicans for a permanent ban, Inouye yanked the bill from committee consideration last week, according to committee sources.

“They pulled the bill because they didn’t like the way the votes were going to come out,” said Sununu. Inouye denied on Tuesday that the temporary moratorium measure faced certain defeat last week.

And during the committee’s next attempt to markup the bill, Inouye may be right. Both Boxer and Kerry expressed support for a permanent ban on Tuesday, but said they were not ruling out voting for a simple short-term measure. “I’m torn,” Boxer said. “I favor a permanent ban, but I’m open to a six-year moratorium.”

However, permanent ban backer Sen. Ron Wyden (D-Ore.) is holding out hope that he can convince Senate Finance Chairman Max Baucus (D-Mont.) to bring up the permanent ban in that panel.

“I’ve had a lot of conversations,” Wyden said. “I’m hopeful that they’ll be taking it up.”

But Baucus appeared inclined to defer to Inouye on Internet tax issues, saying the Commerce chairman’s unwillingness to entertain a permanent ban “probably ends it for this year.”

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