Berko: Internet taxes could take big bite

By Malcolm Berko, Columbian business columnist


photoMalcolm Berko

Dear Mr. Berko: I have a carefully selected growth portfolio, about 16 percent of which is invested in Internet-related and broadband issues. Please tell me what effect this new tax on Internet and broadband usage will have on their values. I'm especially concerned about my shares of Google and Yahoo.

— KH, Oklahoma City

Dear KH: The House recently passed the Permanent Internet Tax Freedom Act. However, if the Senate fails to pass PITFA by Nov. 1, the current moratorium on taxing Internet access will expire, clearing the way for a panoply of creative taxes on broadband Internet access. Consumers will experience spikes in their Internet bills so Washington can continue expanding government programs.

Why, like a bunch of idiots, do we quietly permit the smorgasbord of government programs to gather momentum like cascading boulders bounding down a hill? We've allowed Washington to morph into an ugly, alien vampire squid that wraps itself around our faces and jams its blood funnel into everything that can be sucked and taxed!

Here are some new revenue sources that are being considered by Congress: a tax (0.0005 percent) on bank deposits and withdrawals, a "pot" tax (that's fine), a tax on cellphone calls and tweets, federal fees ($9) on birth and death certificates, a 12-cent hike in the federal gas tax, a postage stamp tax, taxes on church income (good if political contributions can be taxed), higher Social Security and Medicare taxes plus a fourfold increase in our Social Security tax base, a tax on bottled water, and a luxury tax. A Beatles song had it right: "If you get too cold, I'll tax the heat. If you take a walk, I'll tax your feet." And had the Internet been around in 1966: "If you use the Web, I'll tax your tweet." This continuing breach of the private sector by Congress was affirmed in a 2005 Supreme Court ruling — Kelo v. City of New London — allowing governments to take property of others for the private benefit of others.

If the Senate allows the Internet tax to stand, I doubt it will have much effect on your Internet stocks. But it will increase the costs of conducting business, quietly raising the prices of numerous consumer products and services that seem to avoid inclusion in the consumer price index. Congress won't raise Internet taxes high enough to kill it, just enough to nick it so it can nick it again and again. Death by a thousand cuts!

Not to worry about your Google. I seldom recommend stocks that don't pay dividends, which is one of the reasons I've never lauded Google (GOOG-$582). But a computer-savvy friend changed my investment philosophy, not for me but for my grandkid's portfolio. He reminded me that GOOG began life as a typical Silicon Valley sleepy, sandal-wearing nerd organization and steadily morphed into a patent-ingesting monster. Today 80 percent of smartphones are shipped with the Android operating system, not Apple's iOS. Apple wants to get its operating system into the enterprise computing world rather than the artsy-fartsy world of Photoshop and graphic design. "Did you ever hear about cloud computing before GOOG started pushing it?" my friend asked. I hadn't! He continued: "The cloud is the stuff of the future. You'll observe that companies are moving into the cloud and junking their old-fashioned, costly IT infrastructure. (AMZN-$334) and Google run tons of virtual servers for corporations and businesses, and most of us don't realize this. Google is now a utility; people can't live without it, just as we can't live without electrical power."

And on a similar note, he responded that Yahoo (YHOO-$37.78), which he sold at $40.50 last December, "continues to fail, with revenues dropping again. Yahoo completely missed the boat on the effect of social networking websites. That's a myopic shame because Yahoo had a website portal long before Myspace, Facebook and Twitter existed." Perhaps you ought to sell Yahoo!

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775