Tax Day Is Over, but Internet Tax Threats Loom

As Americans stretched to pay the tax man this week, California Assemblyman Charles Calderon (D-Montebello) was working on the sly to institute a new digital tax. Such a move is not only short-sighted, but also could seriously harm the state's competitiveness.

It's no secret that the digital economy is a key driver of California's economic growth, so it is shocking that some political leaders seek to increase the regulatory and tax burden on the tech sector. In the short term, new taxes might help battle California's massive US$8 billion deficit, down from $16 billion through borrowing and accounting tricks. In the long term, however, the results would be disastrous.

Taxes do more than raise money; they also act as a disincentive for economic activity. For instance, so-called "sin" taxes on alcohol and cigarettes are meant to raise prices and decrease sales of the potentially harmful products. A similar effect would occur if Calderon's digital goods tax (AB 1956) was approved, and along with it would come multiple ripple effects.