BUSINESSWEEK ONLINE : APRIL 24, 2000 ISSUE
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GOVERNMENT

Commentary: Breaks for High Tech: Pork Is Pork


It wasn't so long ago that high-tech execs shunned Washington and clutched their wallets when candidates came calling. My, what a difference a few years and a very high-profile antitrust suit can make.

Today, Washington is crawling with tech lobbyists. Industry campaign contributions this election cycle could triple the 1992 level (chart, page 76). Congress, entranced by this generator of jobs, votes, and largesse, dotes on high tech and grants exceptional access to its Washington reps. ''People on the Hill seem to be tripping over themselves in their euphoria over high tech,'' says Frank Torres of Consumers Union, which favors privacy legislation that techies oppose. ''It's almost like they can do no wrong.''

But as in past eras when one industry became the teacher's pet of Congress, this relationship is in danger of turning into good ol' pork-barrel politics. Sure, Congress should nurture the high-tech industry, which produces millions of jobs a year and fuels the economic expansion. But it should continue to weigh high tech's wishes against other pressing needs and expose those wishes to public debate.

Case in point: Internet taxes. Congress' advisory panel on whether to tax goods sold over the Net failed to muster the necessary two-thirds majority to recommend an e-tax ban. No matter. Lawmakers are rushing to pass legislation that would extend an existing moratorium on new Internet taxes, which doesn't even expire until October, 2001. House Minority Leader Richard A. Gephardt (D-Mo.) would add three years; House Speaker J. Dennis Hastert (R-Ill.) would one-up him by adding five.

In a rush to show its high-tech hipness, Congress is pretending that keeping the Internet tax-free isn't the subject of bitter dispute. So why are cities and states so worried that the Net soon could deprive them of half their sales-tax revenues, which pay for education and health care? And why did such Main Street retailers as Circuit City Stores (CC), RadioShack (TAN), and Sam's Club (WMT) come to Washington on Apr. 7 to complain that a tax-free Net puts them at a competitive disadvantage?

Lawmakers hardly noticed the naysayers. They were too busy swapping stories about Bill Gates appearing in their offices a few days earlier. The Microsoft Corp. (MSFT) chairman, facing a court ruling that his company repeatedly violated antitrust law, was treated like a rock star. He met with scores of House Republicans and Senate Dems and had private talks with leaders of both parties. House Republicans even had the gall to ask Gates to up his contributions to GOP candidates. The message: It's time you rewarded us for supporting your cause.

Not all of Congress' techno-pork plans seem so craven. It would appear hard to oppose, for example, industry efforts to close the digital divide. Indeed, dozens of lawmakers have joined President Clinton in offering measures to help minority households catch up to the online-access rates of whites. Clinton wants to extend by three years an existing tax deduction, due to expire this year, for companies that donate computer hardware and software to schools. He would also add libraries and community centers in low-income areas to the list of eligible recipients.

DOUBLE DIP. Sounds good, but a closer look reveals that the deduction smacks of corporate welfare. The tax break lets companies write off twice the cost of producing equipment. Dell Computer Corp. (DELL), for example, could deduct $200,000 for donating PCs that cost just $100,000 to make. With few exceptions, no other corporate charitable contributions qualify for such special treatment. The hit to taxpayers: $10 billion over 10 years.

It's no surprise that high tech, like the rest of Corporate America, wants special favors. But Congress must be careful not to discriminate against the Old Economy or saddle taxpayers with hidden subsidies as it rushes to win the hearts--and campaign checks--of Silicon Valley.

Corrections and Clarifications
''Breaks for high tech: Pork is pork'' (Government, Apr. 24) should have said that President Clinton proposes tax breaks that would cost taxpayers $2 billion, not $10 billion, over 10 years.

By Paula Dwyer
Dwyer monitors congressional largesse as Washington News Editor.

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