The US Needs a Digital Single Market, According to New ITIF Report

WASHINGTON—Growing patchworks of conflicting state laws in key areas of digital policy, such as data privacy and content moderation, have become increasingly costly and confusing impediments to commerce that beg for federal preemption, according to a new report from the Information Technology and Innovation Foundation (ITIF).

The report examines the state-by-state regulatory landscape in 10 areas of digital policy: data privacy, data breach notification, children’s online safety, content moderation, digital taxes, e-commerce, right to repair, right of publicity, net neutrality, and digital identification. In each case, ITIF concludes federal preemption to create a single national standard would benefit businesses, consumers, and the economy.

“Just as state and local governments cannot restrict interstate commerce in the physical world, neither should they restrict interstate commerce on the Internet,” said Ashley Johnson, a senior policy manager at ITIF, who authored the report. “The United States needs a single set of rules for the digital economy to maximize its potential economic and social benefits. Even the European Union has attempted to create a digital single market by instituting a common set of regulations for its member states—albeit by overregulating digital technologies. To ensure the U.S. digital economy remains competitive, Congress should pass legislation to fully preempt state and local regulations of the digital economy.”

The report examines the 10 key areas identified above and tracks how they have progressed toward and away from preemption in the absence of congressional action. Even on issues where federal regulation already exists, some states have passed conflicting regulations of their own. As such, this patchwork makes it difficult and expensive for businesses to comply with regulations, creates confusion for consumers, and needlessly fragments the U.S. digital market. The better approach is to establish a digital single market in the United States by utilizing federal preemption principles as enumerated in the Commerce Clause, which would require Congress and regulatory agencies to create a uniform set of digital regulations. Then, Americans would receive equal protection, have minimized compliance costs for businesses, and remove unnecessary barriers to innovation.

The report reviews the Constitutional principles surrounding the Commerce Clause and concludes that when it comes to digital policy, arguments for federal preemption outweigh the arguments against it.

Therefore, the recommendations for Congress to make progress toward a U.S. digital single market as listed in the report are that:

• Congress should form a bipartisan U.S. Digital Single Market Commission to draft legislation for areas for federal preemption.
• Congress should pass comprehensive federal data privacy and security legislation that preempts state laws, including AI and biometric privacy laws and data breach notification laws.
• Congress should pass a moratorium on state children’s online safety legislation and later pass federal legislation based on recommendations from the U.S. Digital Single Market Commission.
• Congress should enable noninvasive online age verification by providing funding for the research and development of age estimation technology using AI and mandating states implement electronic forms of identification.
• Congress should ban taxes on wireless services and discriminatory taxes on digital goods and services that do not have a physical component.
• States should continue their ongoing work to streamline the taxation of e-commerce by creating common definitions, rules, and simplified tax rate structures.
• Congress should pass legislation instructing the Alcohol and Tobacco Products Tax and Trade Bureau, Federal Trade Commission, and Food and Drug Administration to establish uniform regulations for shipping alcoholic beverages directly to consumers, pupillary distance for eyeglasses, and prescriptions for pet medication.
• Congress should require states to recognize the legality and enforceability of records, signatures, and contracts secured over a blockchain.
• Congress should preempt state right-to-repair laws by passing a consistent right-to-repair standard for electronics at the federal level.
• Congress should establish a federal right of publicity that gives individuals the right to control the commercial use of their identity while allowing for fair use and other speech protected under the First Amendment.
• Congress should outlaw nonconsensual pornography, including deepfake nonconsensual pornography, and create a special unit in the Federal Bureau of Investigation to assist victims of nonconsensual pornography.
• Congress should pass the Improving Digital Identity Act to create a framework for deploying a digital ID system.

“Given that the Internet is inherently cross-border, it is long past time for Congress to step in and establish a consistent national approach to digital policy,” said Johnson.

Read the report.