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Yes, Obama has got some things wrong on the internet. But so has the GOP

Republicans need to think, not just oppose

Analysis Last month, Texan Congressman and lead voice in the Republican party in the US, Ted Cruz, wrote an opinion piece about the internet.

Last week, Wall Street Journal columnist and media-Republican L Gordon Crovitz did the same.

Both dig into critical decisions that will be made in 2015 and cast a critical eye over them. Both make important observations and raise significant concerns. But both reach dangerously bad conclusions based on disagreeing with the Obama administration rather than understanding reality.

This is a big problem. Because starting 3 January 2015, the Republican Party will take over both houses of Congress and will find itself in a position to take decisions that could forever alter the course of the internet. It is vital that the leaders and influencers get their facts right.

In his piece, Cruz ties together several internet policies: a US-only internet tax; net neutrality; the transition of the IANA contract; and the possibility of more legislative efforts put forward largely by intellectual property interests. He proposes a philosophical thread through which each issue should be understood: less regulation and greater freedom.

In many respects, he gets it right. The internet is enormously successful thanks to light regulatory efforts and a lack of government interference.

But the whole reason a number of key public policy issues have arrived this year is because the internet is at a tipping point. We all agree that this global network is a vital economic driver, but it has also become so enmeshed in our personal and social lives that it needs considered, nuanced and intelligent policies that reflect its maturity as a medium.

The internet's greatest asset is its worldwide status - and so the United States needs to recognize that its interests lie in adopting a more global perspective. At the same time, a significant number of established companies have stopped fighting as hard for new customers and are turning toward profiting as much as possible from their existing customers, who are increasingly a captive audience.

It is the unique job of government to ensure that it is looking out for its citizens' overall best interests. And, as Cruz recognizes, that means finding the correct balance between consumer protection, regulatory power, freedom for large corporations, and shielding small companies from anti-competitive actions.

Two out of four ain't bad

In two of his four points, Cruz gets its right; with two, he is badly - even dangerously - wrong.

"First, we must abandon the idea of further taxing Internet access and sales," he starts his first point. A plan to impose state and local taxes on online sales died in latest Congress earlier this month, so Cruz got his wish.

The senator argued: "There are more than 9,600 state and local sales tax jurisdictions across the nation. Forcing small online retailers to track all of them, keep records and collect the taxes, or risk being penalized for noncompliance by distant governments over whom they have no control, is simply not fair."

Cruz is right and is even-handed enough to acknowledge that it was the Clinton Administration that put in place the ban on taxing e-sales. There is widespread agreement that Clinton's decision to exempt the internet from taxes was a huge help in firing up the internet economy. And a key part of that economy is the ability for people to set up quickly and easily with the minimum of overhead or regulation and start filing in micro-gaps in demand.

As John Oliver recently put it in a segment on the internet and net neutrality: "You can go online right now and buy a case of coyote urine. Do you know how difficult it used to be to obtain coyote urine? You literally had to give a coyote Gatorade and just wait. The system was a mess."

Obviously, Oliver is playing for laughs but coyote urine is just one of a million niches that are fulfilled by small companies online every day – tiny market gaps that would never find their way onto a large company's radar.

The more requirements that you attach to a transaction, the less likely it is that it will happen at all. And that is especially true of all these new micro-economies. That's not to say sales taxes should never be applied to online sales, as Cruz argues in his call for a "permanent ban." It is all too possible that in the era of open source and freely shared software that people will develop ways to seamlessly include sales taxes for all 9,600 jurisdictions based purely on the address people type in.

If sales taxes were also imposed on online sales, it might even spark competition between states to pass low online-only taxes as a way to drive business to their jurisdictions.

But what would be good to see is a decision by Congress to not impose online taxes until some independent economic analyses calculate that the value of not having a tax in terms of economic stimulation has started to be outweighed by the extra money that would be put into local and state economies. That may only be a few years' away but no one is arguing that we are there now.

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