By Pamela M. Prah
Prospects are good that Congress will send more transportation
dollars to states this election year in a bid to woo voters
back home. But there’s a risk that state coffers will
be raided if federal lawmakers change the rules on how Internet
services are taxed.
States hope Congress will act on their wish lists in a session
abbreviated by breaks for both political conventions this
summer and overshadowed by election-year politics.
Fortunately for states, a transportation bill that would
give them more federal dollars for highway and transit projects
is a top priority for both Republican and Democratic congressional
The multi-billion-dollar package, which is the blueprint
for road construction over the next six years, is packed with
projects that U.S. senators and representatives can tout when
stumping for reelection. Among the projects are expansion
of trucking lanes on Interstate 710 in Long Beach Calif.,
completion of the North American trade corridor on Interstate
69 that runs from Laredo, Texas, to Montreal, Canada, and
easing of traffic in downtown Chicago.
Unfortunately for states, they could end up losing big in
a tax debate over Internet and telecommunications services.
Lawmakers in the nation’s capital are eyeing legislation
(S 150/ H.R. 49) that the Council of State Governments said
could cost states between $4 billion and $9 billion in revenue
Rather than seeing the tax rules rewritten under those bills,
states say they would prefer that Congress stick to the current
moratorium that prevents states from collecting a tax on the
fees people pay when they go online and access the Internet.
States say the Internet access bills are written so broadly
that telecommunication companies that provide Internet access
also would be exempted from other taxes, including business,
income and property taxes.
“We’re obviously concerned about these bills,”
said Amy Scott, CSG’s senior legislative policy analyst.
The CSG, which is working with the National Governors Association
and National Conference of State Legislature and other groups
on this issue, wants Congress to simply extend the current
moratorium for two years.
The Internet access proposal is separate from efforts to
make it easier for states to collect sales taxes on Internet
purchases. States desperately want Congress to approve it.
“We will put all of our effort into that,” said
Michael Bird, senior federal affairs counsel for NCSL. But
passage is a long-shot.
“I don’t know if Congress, in the middle of
an election-cycle, is going to want to spend a lot of time
raising taxes that go to politicians in a different level
of government,” Grover Norquist, president of Americans
for Tax Reform, an anti-tax group, told Stateline.org.
Congress began 2004 finally wrapping up the mega-spending
bill for the current fiscal year, a boon for states. The $328
billion package that Congress sent to President Bush last
week includes something for every state, said Taxpayers for
Common Sense, a group that describes itself as a watchdog
for taxpayers. California, for example, has 509 “earmarked”
projects, the group said in a January report that lists each
With the current spending bill out of the way, Congress
can begin work on the federal 2005 budget and its top legislative
items, which don’t always top the list of states and
governors. In the Senate, GOP priorities are class-action
litigation reform, medical malpractice and pension reform.
The House GOP will set its sights on making permanent Bush’s
tax cuts and will consider such controversial issues as recognizing
unborn victims of violence and a Constitutional amendment
to ban same-sex marriages. Democrats will continue to focus
on health care, worker training and jobs.
Congress has plenty of other work to do that states will
be closely watching. A heap of existing laws that technically
“expire” will need to be renewed or revised: welfare
reform, Amtrak, Head Start, special education, job training
and higher education.
All are important because states have a huge role in administering
the programs. “How many major reauthorizations can [Congress]
do in an election year? I think two,” said NCSL’s
Sources on and off Capitol Hill say it is unlikely Congress
will get to all these laws, making extensions a good bet for
several of them.
Revising the Bush administration’s sweeping No Child
Left Behind education law is a “major priority”
for the National Conference of State Legislatures, but Carl
Tubbesing, deputy executive director of state and federal
relations for NCSL, concedes action is “not likely”
this year. The council is working on recommendations to give
to Congress to rework the federal education law in 2005.
Given the federal government’s track record over the
past few years, “the states would probably be happy
if Congress did nothing at all,” said Nick Johnson,
director of the State Fiscal Project at the Center on Budget
and Policy Priorities, a group that focuses on policies affecting
He noted that Congress passed new mandates concerning education
and election reform, but states were left to pick up most
of the new costs. States would probably prefer “no more
tax cuts and no more unfunded mandates,” Johnson said.
Tubbesing said NCSL will launch a campaign to bring more
attention to federal laws that ask the states to pick up most
of the costs. “(State) legislators are angry,”