FCC Hikes E-rate Telecom Taxes

Published December 15, 2014

The Federal Communications Commission voted in mid-December to hike fees on consumers’ wireless services to increase subsidies for Internet connectivity for schools and public libraries.

Created in 1996 as part of the Telecommunications Act, the E-rate program receives $2.25 billion annually in U.S. consumers’ money, through the Universal Service Fund, a line-item fee tacked on to the bills for consumers’ use of wireless devices.

FCC Chairman Tom Wheeler has proposed a 62 percent increase, hiking the E-rate program by $1.5 billion. As a result, each mobile phone user in the United States will have an additional $0.16 added to their monthly phone bill.

Increased Taxes, Reduced Access

The Tax Foundation, a nonpartisan taxpayer advocacy group, states wireless fees and taxes have increased three times more rapidly than any other tax on goods or services. After combining local, state, and federal taxes, U.S. consumers pay an average tax rate of 17.05 percent on their phone bills.

In his October 2014 study of wireless taxation, Tax Foundation state policy analyst Joseph Henchman wrote, “Wireless taxes and fees are regressive and have a disproportionate impact on poorer citizens. Excessive taxes and fees may reduce low-income consumers’ access to wireless service at a time when such access is critical to economic success.”

‘Less Skin in the Game’

In an interview, FCC commissioner Ajit Pai publicly disagreed with Wheeler’s proposed rate hike, arguing the program’s goals can be achieved without additional fees.

“Cutting down the red tape would have meant fewer delays, would have been predictable for a lot of these folks who need E–rate funds, and it would have eliminated or at least significantly reduced the need for all these schools and libraries to hire E-rate consultants,” he said.

As implemented by the FCC, the E-rate program incentivizes public schools to lean on the federal government for discounted Internet access and for funding for technology programs.

“Part of the problem is, as you might imagine, that if your school is getting a 90 percent discount—and you only have to put in one dollar for every nine dollars you get in E-rate funding—you have a much stronger incentive just to ask for additional funding, because you have less skin in the game.”

According to Pai, the schools receiving the most taxpayer subsidies are also the biggest spenders of USF money.

“As a result, a large number of schools don’t even get funding from the E-rate program at all, because of this discount system,” he said.

Pai proposed shifting to a “per-student model,” explaining that “there would be a bump, in terms of the funding equation or funding formula for rural and low-income areas, as well as smaller schools,” as school highly dependent on E-rate funding would not crowd out less dependent schools.

Matt Hurley ([email protected]) writes from Cincinnati, Ohio.

Internet Info:

“Economic Welfare and Telecommunications Regulation: The E-Rate Policy for Universal Service Subsidies,” Jerry Hausman, http://www.heartland.org/policy-documents/economic-welfare-and-telecommunications-regulation-e-rate-policy-universal-service-/