Speech by Rep. Dick Gephardt (D-MO). Re: Democratic Party technology policy. Date: March 28, 2000. Source: Office of the Democratic Majority Leader. Tech Law Journal created this page by converting a PDF document into HTML.

NEWS FROM THE HOUSE DEMOCRATIC LEADER

"‘HouseDemocraticMajority.Gov’:
Fueling the High-Tech Engine of Economic Growth and National Prosperity"

Thank you for taking the time out of your hectic schedules to be here this morning. I know that in ‘Internet time’, every second counts, and given the volatility of the stock market, your time is worth a lot of money. So I’ll try to be brief and to the point.

Many people in the technology industry have the attitude that Washington is completely irrelevant to what is happening in the tech revolution. I’m sure some of you share the viewpoint – that the government that governs best is the government that stays as far away from your businesses as possible. But, being in the Washington area, you probably understand better than many others in the high tech industry around the country how government policy intersects with the interests and the future of the industry.

It might surprise you that to some extent, I share that view. What is going on in Silicon Valley and Silicon Alley and right here in the Silicon Dominion has everything to do with the entrepreneurial energy and spirit of the software engineers and vcs and ceos who build billion-dollar companies out of good ideas and big dreams.

You have done what no government policy could ever have done – you have helped transform the American economy in less than five years to the dynamo of international growth and innovation it is today.

Every American is beginning to have a fundamental understanding of the revolutionary changes that are going on – from the explosion in e-commerce to technology in the classroom. I have to say that I have a new appreciation for the tech industry. My son Matt is now a tech entrepreneur. He was a student at the Kellogg School of Management where he developed a business proposal with some of his classmates. I have seen firsthand how quickly an idea becomes reality – and how fast these businesses are having a real impact on our economy.

The Internet revolution is invading every aspect of our lives – from the way we shop, to the way we learn, to the way we manage our finances, even the way we will choose our elected officials. It has great untapped power to democratize our society by empowering individual citizens. I recently read someone downplay the scope of the Internet – saying that it is an invention that is nowhere near the importance as the automobile or the radio. I couldn’t disagree more.

This isn’t just about giving people another option to shop – although to hear Jeff Bezos, Steve Case, and others speak about what they have planned, that alone is going to be quite a revolution in itself. The changes that technology will bring about in the lives of all Americans is going to radically reorder our lives – the nature of every task we perform is going to change because of the technology that is being developed and tested and marketed at the fastest pace our economy has ever seen. I firmly believe the Internet revolution hasn’t even begun to make itself felt -- this is going to be the biggest change in the way we live and the way we work since the industrial revolution.

These changes have also radically changed our economy. As so many of you in this room can testify to personally, the technology revolution has led to an explosion in the average household worth of the American family. It has created immense shareholder wealth. And it has made the term millionaire almost pedestrian.

This is all good. While most American families still have a small portion of their net worth in stocks and many aren’t invested in the Nasdaq, the changes in Silicon Valley and other tech hotspots have made the economic life of most Americans stronger and more successful.

You might ask: why has this happened? I think the tech revolution has helped transform the laws of economics that anyone who lived through the sixties, seventies, and eighties is all too familiar with. Strong demand traditionally drove up labor costs, which led to inflationary pressures in the economy. But the world economy is changing due to technology and competition.

The tech revolution has helped increase the rate of productivity to double what it was in the seventies and eighties. Over the last four years, productivity by American businesses and workers has grown at the rate of 2.8 percent a year. And in the fourth quarter, it moved ahead at a mind-boggling 6.4% rate.

What does that mean in real dollars? I met with Tom Meredith of Dell Computers recently, and he told me that it cost Dell $100.00 to take a phone order versus $20.00 to take the same order online. That phenomenal eighty percent savings is being realized in every industry that shifts its production to the net. Increases in productivity lessen the need to hire more workers. And businesses can pay higher wages without a negative impact on corporate profits. Both factors have helped keep corporate profits at record levels and have helped prevent a overheated labor market.

This isn’t just a ‘new economy’ phenomenon. In fact, technology is breaking down the boundaries between the definitions of old and new companies. Cisco Systems Inc. has saved nearly $2 billion over the last four years by using Internet technology in ordering, manufacturing, human resources, and finance systems. And Ford Motor Co. foresees something like $8 billion in savings from increased productivity. This is a lot of money. Its having a big impact on the bottom line for every type of business.

The increased productivity from technology investment may taper off – unless the cycle of technological innovation and the application of this innovation continues at the same pace that has taken place over the last decade. For us to enjoy continued growth in productivity – continued low inflation – and continued low unemployment – the key is a continuation of the technology revolution.

That’s why I’m here with you today, and why I thought it was important to outline my views on technology policy. This is a bigger issue than the future of your individual companies – some which will succeed more than others in the upcoming years. This is an issue that affects the future of not just your shareholders and your employees, but the economic future of every American, wherever they work, whatever they do.

For my entire career, my primary goal has been to increase opportunity and economic growth for middle-class families. I believe that the technology revolution has the potential of bringing economic opportunity to the largest number of Americans, especially those who have too often seen their incomes stagnate over the last few decades. That’s why I’m so passionate about what you are doing, and why I’m so committed to trying to pursue policies to foster innovation and growth in the tech industry.

It is sheer hubris to claim that one party or another is the "technology party." The truth is: the technology industry has done very well without the intrusion or interference of Washington. And its fundamental success or failure will be ultimately determined in the marketplace.

The government is not the leader -- nor should it be. But the government, by pursuing wise, prudent policies, has the ability to help keep this technology revolution on track. It can be a partner – doing what the private sector cannot do alone. The federal government has a critical role to play in developing public policy to do everything possible to keep this engine running strong.

Apart from preserving the surplus for eliminating the debt, there are several steps that Congress should take to ensure that our tax and regulatory system allows the tech industry to continue to expand and prosper, fostering innovation and new productivity-enhancing technology. And, of course, we must build on our historic role in promoting education and training in order to take advantage of the millions of new jobs being created by the tech industry.

I’d like to outline several key areas where I think that government leadership is critical to ensuring that this economic engine of growth continues to drive our economy forward.

The area where government can make the greatest contribution to the strength of the technology industry is in the area of e-commerce. Currently, the United States is the world leader in the electronic commerce arena -- policymakers need to do everything possible to keep our leadership role in place.

We are in the midst of a critical debate on the taxation of e-commerce. And for a change, we see the development of something resembling a national consensus on key points surrounding this issue.

I believe that all parties who have considered this issue agree on one bottom line: that there should be no new tariffs or taxes on Internet services. This is critical – the best and quickest way to kill the golden goose of the Internet is to tax it to death.

But the more difficult question is whether a state government should be allowed to collect sales taxes on e-commerce transactions made between residents and companies residing in other states. It is clear that there is not consensus on this issue right now – the commission created by Congress to review this issue is currently unable to reach a required two-thirds majority to issue a binding recommendation on this issue to Congress. Therefore, it is critical to extend the soon to expire moratorium in order to allow a consensus to develop.

There are a couple of key principles that I believe need to be a part of any eventual agreement. First of all, our tax system should never favor one type of business over another. But that’s exactly what we would do if we were to make the moratorium on e-commerce sales taxation permanent.

Clearly, brick and mortar businesses are disadvantaged by catalog and Internet sales in terms of price – a consumer gets a tax-free purchase. I strongly feel that the government should never allow this kind of inequity in our tax system to continue indefinitely – this burden is unfair to traditional stores. But it is equally unfair and unwise to require e-businesses to run the maze of more than 7,000 state and local taxes, an impossible obstacle for many young, small e-commerce businesses.

Under the current moratorium, we are precariously balanced and drastic movement in either direction could have detrimental consequences. Clearly, there is too much at stake to rush into the breach.

We must extend the moratorium beyond the fall of 2001. But an additional five years is an eternity in Internet time – I would support extending the moratorium until October 2003 to allow the forces on both sides of the issue to reach consensus. And I am ready and willing to facilitate discussion with both sides of this issue to reach a solution in their mutual best interest.

In some states, sales taxes are a primary source for revenues to fund education. A permanent moratorium may turn out to be self-defeating for the tech industry – if we neglect education further than we already do, we will see an additional decline in the number of qualified graduates who are able to fill tech jobs.

The states clearly need to enact sales tax simplification. And new proposals and technology for administration of tax collection to lessen or eliminate the administrative burden on e-commerce shops must and will be developed.

We must prevent the initiation of any new taxes that may result in the derailing of e-commerce. But we must also look at taxes that are currently in place that dampen the availability of existing Internet and telecommunications services.

One such tax is the telecom excise tax. That tax was put into place 102 years ago to help finance the Spanish-American War. Today, it doesn’t finance any war, but it could be an impediment in our battle to provide universal access to the Internet, especially for low-income families who have a tough enough time paying their bills. I support phasing this tax out of existence – it is an important way we can make telecommunications services more affordable, and a first step in helping bridge the digital divide.

Another key impediment to the spread and health of e-commerce isn’t related to issues of taxation. It is the issue of online privacy and security for Internet consumers.

Privacy is clearly a major worry to consumers. Some estimates indicate more than 60 percent of Internet users refrain from engaging in purchases over the net because of privacy concerns. And 90 percent of those who do engage in e-commerce are concerned over the misuse of their private information.

The potential for abuse is not a groundless fear. Consumer information on web sites has been hacked and stolen. And online sites are currently collecting a great deal of personal information from the surfing habits of individual visitors.

The challenge of protecting the privacy and security of those who use the Internet to engage in e-commerce is significant and daunting in its scope. We can neither ignore this issue nor can we believe that a simple legislative fix will solve this problem.

I support and encourage the self-regulatory efforts on the part of Internet businesses in the area of privacy, such as the Better Business Bureau and Trust-e, as well as the public efforts of the Federal Trade Commission. I also encourage industry to take a more active role in educating the public and members of Congress on its ongoing efforts to protect consumer privacy.

But Congress can not stand idly by as consumer confidence in e-commerce is eroded because of privacy concerns. If we must act, we should do so in a way that gives consumers a meaningful choice in how their personal data is used, while not impeding the ability of responsible businesses to collect data and information which is the lifeblood of e-commerce.

I also support the joint efforts on the part of the Department of Justice and the industry to crack down on cybercrime. ITAA, one of our sponsors here today, has played an important leadership role in this effort.

We need to strengthen e-commerce at home. But we must also act to strengthen the US leadership role in this industry abroad.

I understand your concerns about China PNTR. Not only is China a massive potential market for US technology firms, but increased trade in technology also holds the promise of bringing democratic change to China. Unfortunately, introduction of the Internet in China has coincided with backsliding on human rights and continued problems with protection of intellectual property rights by the Chinese government. The same forces that ignore software piracy tolerate and perpetrate human rights abuses. We must make sure PNTR provides the right incentives for China to move towards the rule of law, to protect both personal and property rights.

We have other critical issues that we must address to ensure that the technology industry can successfully compete in the growing international marketplace for your products.

We achieved a huge victory in the change in our policy on encryption exports, thanks to the work of many of you here today. It was a hard battle to change the entrenched cold-war mentality on this issue, but we succeeded in making sure that US businesses do not needlessly suffer from this outdated policy. But we must do more.

America’s technology exports are huge – the high-technology industry is the largest single exporter in the country, selling $181 billion in goods and services in 1999. We need to make permanent the current moratorium on international tariffs on the Internet. Foreign governments must not be allowed to use tariffs as a weapon against US companies that do business on the Internet with their own citizens in order to prevent loss of domestic market share.

On another international trade issue, our own government is often the worst enemy of US corporations. The export control regime is another cold war relic that if not reformed could stifle the growing needs of our 21st century economy.

While we have made significant progress in working with the Administration to modernize the process of exporting encrypted computer products, we still have a lot of work to do on export controls. For the short term, we need to reduce export controls on supercomputers and shorten the congressional approval period from 180 to 30 days. For the long term, I believe the whole export control regime must be overhauled to reflect our era of rapid technological change.

If our export control system is a relic of the cold war, our tax system is a relic of the industrial revolution. Just as I have called for reform of our federal income tax system for individuals, it is time to reform and update the tax code to promote investment in productivity-enhancing areas like technology.

The most important step we can take in this area is to make the R&D tax credit permanent. We currently are extending this tax credit on a piecemeal basis, which is a horrible way to enact tax policy in such an important area. How can businesses plan for their long-term budgeting when they are unsure that this tax credit will even be in existence a few years from now?

We need to promote investment by businesses in their human infrastructure – their employees – as well as in equipment. Right now, the tax code allows employees to receive tax-free annual tuition assistance from their employers for undergraduate education. As with the R&D credit, the temporary nature of this provision doesn’t allow businesses to properly budget for the future. We should make this provision permanent so that tuition benefits are fully deductible to companies, and we should expand it by restoring coverage for graduate level education.

We must also update the depreciation laws to ensure that the useful life of high-tech equipment such as semiconductors is reflected in our tax laws. It’s crazy that our tax laws require depreciation over five years when we all know the reality is far different. We need to change our tax treatment of computers and other high-tech equipment to bring them in line with reality.

One last area where the tax code should be updated to take into account the changing needs in our economy is the development of broadband. It is an inescapable fact that for different reasons, rural and low-income urban areas are being redlined in the rollout of broadband technology.

In the modern economy, access to broadband is not an option – it is a necessity. Being cut off from access to broadband is the equivalent of being landlocked for a merchant early in the 20th century. The government has a role to play in this area by providing incentives to firms that invest in broadband technology in these areas.

Any such incentives must be technology neutral, because the government should not be in the role of choosing winners and losers in the exploration of this new frontier. But we must help move the market into these areas, or the broadband divide will only get worse.

Finally, I’d like to talk about the area where I believe that government can have the greatest positive impact with regards to technology.

Currently, many of you are concerned with the H-1B visa issue because of the shortage of skilled workers in the technology industry. For the first time in my tenure in Congress, the number one economic issue isn’t about jobs, but about people.

Raising the existing ceiling on H-1B visas alone is a quick fix that does nothing to address our future dependency on imported talent to fill our technology jobs. I support raising the cap, and will support bipartisan legislation to ensure that our technology companies don’t suffer from this lack of skilled workers. But I will only support this increase because it is coupled with important funding for education and training programs that provide long-term solutions to allow us to produce home-grown talent to fill many of these jobs.

While I have always supported legal immigration -- and attracting some of the best and the brightest to our shores from around the globe -- it must become our national priority to produce an American workforce with 21st century skills.

With about two million people in jail and about two million unfilled jobs, we must lead a national crusade to make sure every child grows up to be a productive, law-abiding citizen. We must do nothing less than revolutionize public education and make the education of our children our most important national priority -- we can’t leave one child behind.

With dramatically changed families and adult work schedules, we know that public schools are the only institution with the scale necessary to ensure that every child is taught to be a productive citizen. Revolutionizing public schools means adapting them so they can help families cope with the reality of single parent families and two-worker households.

It will take more resources from the federal level, and more performance accountability at the local level to do this, and it won’t be easy. It depends on the President and the Congress leading the entire nation to make the necessary commitment to carry out these changes, much as we did in the post-Sputnik period.

Education is also an important part of the answer to how we conquer the digital divide. Solving the digital divide is not just a matter of providing ubiquitous access to the Internet, but also about how we provide ubiquitous opportunity to the Internet economy for all Americans, especially those who have historically been left behind.

Congress must commit additional funding for Historically Black Colleges, Hispanic Serving Institutions and Tribal Colleges to prepare students for careers in technology. These schools are the magnets for some of the best-qualified high school graduates in the country; if we focus our energy on technology training programs at these schools, we will be able to help eliminate the disparity in hiring that many technology companies have had to struggle with over the last few years.

The private sector is starting to realize the scope of this problem, and has begun to do its part. I have to commend the social conscience and public spirit that we have all seen from the your community. Last year, the Bill and Melinda Gates Foundation announced a $1 billion scholarship program to increase minority access and representation to math and science. The program is being administered by the United Negro College Fund, headed by my former colleague in the House, Bill Gray. Government can't do this alone. Nor should it. It will take these types of partnerships to help us reach our goals.

We need to make sure that our young people get the education they need in K through 12  and beyond to pursue careers in the technology industry. But we also need to find ways to make sure new technology gets embraced by workers who are out of school and in the workforce.

We have to be tireless in trying to hasten the spread of technology in our society. It’s not going to happen by itself. All you have to do is to look at the disparity in the use of the Internet to see that the technology revolution is spreading unevenly through our nation.

A laissez-faire attitude will ensure that these inequities are cemented into place for generations. If you think the legacy of racial discrimination has had a negative impact on our society, just wait until millions of low-income and rural Americans are kept off the information highway and see what happens. We can’t accept a society which is divided into high-tech and no-tech for much longer, or the inequality of income that is of such concern will just continue to widen and pull us apart even farther.

There isn’t an easy answer. It will take the concerted effort of the public and private sector to make sure that technology spreads to every corner of our society. The President’s digital divide and e-rate proposals are a good start -- and need to be funded. But we must continue to search for new solutions which build on the work we have already begun.

Ford and Delta have shown that providing computers to their employees makes good business sense. We need to encourage companies to follow their examples, and do the same thing with their own employees. This is an area where the federal government can provide the catalyst to the private sector by providing incentives for companies to follow Ford and Delta’s lead.

We also need to reach out to people outside the workforce -- such as seniors and the disabled who may be left out of the technology revolution. The private sector can make a real difference here by providing discounts to community-based nonprofit organizations, such as churches, synagogues, and mosques who aggregate the purchasing power of their members to buy computers and Internet access.

Our commitment to universal phone service has brought about coverage to nearly all households. We need to replicate our efforts when it comes to the Internet. No household should go without Internet access. That must be our imperative for this new century.

As you all know, we are deep into an election year. Certainly, I am doing everything possible to bring about a return of control in the House of Representatives to my party.

I am excited about winning. My excitement is about what a Democratic House will do, and how we can operate in a more bipartisan and productive way. High-tech issues will flourish in an environment where Democrats and Republicans can work together to promote what is best for both the industry and the nation.

I hope to work with many of you here today to find solutions to the challenges that we face in making sure the technology revolution stays on track, and that it’s a revolution that helps improve the lives of everyone in this country.

Government can’t do it alone. But I do know that our role can be a constructive one if we adhere to an approach that allows the private sector the breathing room to solve some of these problems by itself. I look forward to leading a Democratic House that does everything possible to ensure that we can continue this longest peacetime expansion, with technology leading the way.

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Contact: Laura Nichols/Sue Harvey (202) 225-0100