Leading Taxing Questions
Congress didn't do much this year to address one of the biggest questions confronting the digital economy -- how (or whether) to tax it. But lawmakers left plenty of bills on the table that will define the debate when they reconvene in January.
Among the items up for discussion are two that could have a big impact on corporations. One is whether new rules are needed to govern how companies write off their IT equipment. The other is how to encourage employers to fund high-tech education and training for workers. "Many of our tax rules predate the new economy," noted Rep. Amo Houghton (R-N.Y.), chairman of the House Ways and Means Committee's Subcommittee on Oversight, during a September hearing that examined both topics. "The strength of the economy may be masking underlying inadequacies in our tax laws."
Bill Gale, a senior fellow with The Brookings Institution, says the depreciation rules for IT equipment need to reflect the useful life of the technology. The high-tech industry complains such equipment is obsolete before companies can completely write it off. But Michael Jalbert, CEO of mobile radio manufacturer Transcrypt International, noted that the existence of 50 different bills proposing different ways to tackle it "demonstrates how much work is yet to be done."
On education, Jeffrey Eisenach, cofounder and president of the Progress & Freedom Foundation, a new economy think tank, suggests that policy makers will increase subsidies for "lifelong learning." It doesn't make sense, he says, "to subsidize K-12 education but give no recognition to the value of continuing education." When Congress adjourned last month, lawmakers archived about five dozen bills proposing tax breaks to both companies and individuals for college tuition, training and wiring schools -- all aimed at creating a more tech-savvy workforce.
Jonathan Low, a senior fellow with the Cambridge, Mass.-based Cap Gemini Ernst & Young Center for Business Innovation, thinks Congress should take its time tinkering. "In this Net speed economy, we're not supposed to move at a snail's pace," he says. "But we don't have a lot of good information" about what kind of help companies really need.
Building Global Business
Representatives from the G-8 industrialized nations start work this month on a guide for developing countries that want to stake their claim in the Internet economy. The Digital Opportunities Task Force (a.k.a. the dot force) was proposed at a summit meeting in Okinawa, Japan, in July. It would promote e-commerce-friendly policies in the nonwired world and help developing countries build their technical expertise.
One feature of the project is to channel private sector know-how to the developing world. So far, U.S. companies, including America Online, Cisco Systems, Intel Corp. and Microsoft, have said they'll offer training programs in developing nations.
What's in it for them? For one thing, "market development," says Alan Larson, under secretary for economic, business and agricultural affairs with the U.S. State Department. "Ninety percent of the world's consumers live outside the United States. A lot of changes over the next 50 years will come from the rest of the world catching up to the developed world. The action may be in countries that are developing."
Larson notes that these contributions won't produce widespread economic improvements without other investments in basic education and health care. But he thinks technology can help there too. "We stress opportunities to use the Internet for initiatives like distance learning," he says. "I've lived seven years in developing countries, so I don't come to this with naivete about how difficult it will be to make the Internet accessible to remote villagers. But I don't think it's impossible, and I do think it's important."