Government in the Connected World

Earlier this year, The New Yorker’s George Packer wrote a brilliant piece about Silicon Valley’s slow entrance to politics. This was bound to happen, as any major industry eventually begins to lobby for favorable regulation. Up until now, the rise of the Internet has been a threat to government, especially state and local governments, as it has reshaped the marketplace.

First, several apps and websites have directly threatened local government roles. Among these are transportation apps, such as Lyft, Uber, and Sidecar, which directly compete with public transportation. Most of these are ride-sharing apps, where people post where they are going, and can take a passenger for a fee. Uber has become popular in major cities, as it teams with luxury car services to help people catch a ride. The app works even though it can be “50 percent more than a normal city cab (NYTimes).” New York City, which has a tightly controlled taxi medallion market, has begun to fight back against these apps. New York prides itself on its taxi and public transportation quality.

States and cities, including New York City, have been pursuing lost taxes and fees from online companies. For years, the novelty of online shopping giant Amazon and Amazon’s skilled lawyers was able to keep the site tax-free. However, municipalities and states missed those tax revenues. Now, twelve states have successfully forced Amazon to collect sales taxes. Amazon recently petitioned the US Supreme Court to decide the sales tax question once and for all, rather than deciding with every state and municipality individually.

Other sites will go through this process soon. New York City’s hotels have entered into a class-action lawsuit against room sharing website Airbnb for operating unregulated hotels that do not collect Hotel-Motel tax. New York’s Attorney General, too, has been seeking to find a way to collect that lost tax revenue. Airbnb does release rental income information to the federal government, so it the IRS can collect income taxes on Airbnb members.

Finally, it has become easier to engage in contraband on the Internet. Recently, we have seen a dust-up over online currency BitCoin. Bitcoin, which is an “untraceable” online currency, allows for easier transactions in contraband. It also operates outside of normal monetary policy, guided by an algorithm rather than a central bank such as the Federal Reserve. The Wall Street Journal reported that regulators are investigating Bitcoin for its uses within the financial industry.  Investigations have also shown that Bitcoin, as one might guess, is used for buying banned substances online.

As the Internet becomes more mainstream, this will die down. Regulatory structures are adapting to the new models, just as they did to the telephone, automobile, and other previous innovations.