FCC’s National Broadband Plan Includes New Taxes

Published April 6, 2010

The Federal Communication Commission’s “National Broadband Plan” includes several proposals to raise taxes on commerce on the Internet—a move that would require congressional action and could harm innovation, investment, and the economy.

The FCC’s long-awaited plan to fulfill Congress’s mandate to offer ideas to increase broadband penetration and affordability, released to the public March 16, included several new tax proposals. The plan called for the implementation of a sales tax on goods purchased over the Internet, the so-called Amazon Tax.

The plan also called for revisions to the Universal Service Fund (USF)—set up decades ago to tax all telephone customers to help fund rural phone service infrastructure—to help funnel money toward government-directed broadband deployment programs.

‘Careless’, ‘Unrealistic’
Pete Sepp, vice president for policy and communications at the National Taxpayers Union in Washington, DC, says the plan’s proposals will be extremely costly and difficult to enforce.

“We have begun reading through the plan, and many of the provisions are as troubling as they are careless in their fiscal outlook,” Sepp said. “The report throws around the term ‘billions’ as if that were chump change that Americans can easily afford. Even in better economic times, this would not be true.”

“It is also highly unrealistic to believe that online consumers and the business that serve them will simply stand still while massive blanket of Internet taxes gets thrown on them,” he said.

Tax Unfairness
Sepp, who considers the USF unfair, doesn’t hold out much hope the FCC’s newly proposed taxing regimen will be any more equitable.

“In the current political and fiscal environment, there is not a consistent way of taxing broadband services,” Sepp said. “A totally neutral tax policy might focus on one low rate applied to all goods and services provided at the retail level, with lower burdens on individual incomes and corporate profits to ensure that productive activities don’t bear the brunt of taxation.

“But we are so far away from that ideal now, it seems highly suspect to offer new broadband taxes as some way of establishing ‘fairness’ or encouraging ‘development,’ ” he added.

FCC vs. Fiscal Reality
The FCC claims its broadband plan claims is revenue-neutral or even revenue-positive, but it also includes billions in new spending. These claims are based on the FCC’s published assumption there will be improved government efficiency, plus funds the federal government would collect from compelling the television broadcast industry to auction off some of its spectrum for use in wireless technology.

Adam Thierer, president of the Progress & Freedom Foundation, a think tank in Washington, DC, says most of the spectrum money won’t materialize.

“The agency is never going to bring in enough to cover what they’ve proposed here,” Thierer said. “The reason is simple: Most of the spectrum [the FCC] wants to grab is currently occupied by someone else.”

“And that means that the spectrum auction revenues the agency predicts will cover all the costs of the National Broadband Plan will get eaten up by buyout checks for broadcasters,” he added.

Good Goals, Bad Policy
Sepp says he thinks the FCC has it all wrong about how to spur investment in broadband. Reducing taxes, not creating more, is the key.

“Investment in broadband happens when the tax burden is lightened, not when it’s made heavier on the industry and its customers,” Sepp said. “After all the scandals at USF over the years, it is folly to design a new round of taxes that effectively are based on such a model.”

Tax More, Get Less
Kelly Cobb, government affairs manager for the Washington, DC-based Americans for Tax Reform, agrees.

“The easiest way to discourage something is to tax it, and the FCC’s proposal to slap at least a 15 percent tax on broadband will have exactly that effect by raising prices for consumers,” Cobb said. “This is completely contrary to the goal of the National Broadband Plan, which is to expand broadband access.” 

“Since President Obama’s FCC took over in 2009, the Universal Service Fund tax has risen by 5.8 percent—higher than ever before,” he added. “The FCC’s plan to slap new regulatory burdens on Internet Service Providers will certainly diminish private investment and economic growth.”

‘Eliminate This Tax’
Cobb says if the FCC is serious about helping expand broadband penetration and affordability, tweaking or adding on to the USF is the wrong avenue.

“The FCC’s aim is to expand the size of the Universal Service Fund to help pay for their new venture into broadband access,” Cobb said. “But that’s a bad idea.

“It would be better to completely eliminate this tax on consumers to help bring the price of broadband down and expand the number of people who can afford it,” he added.

Missed Opportunity
Cobb says the FCC plan whiffed on a unique chance to spur the private sector into action and bring even more competition among America’s ISPs.

“The FCC missed an opportunity to create more tax incentives for private investment in broadband for underserved or unserved areas,” Cobb said. “Instead of cutting taxes on consumers and providers, the FCC is clearly pursuing a command-and-control model that is guaranteed to raise the tax and regulatory burden on broadband.”

Sarah McIntosh ([email protected]) teaches constitutional law and American politics at Wichita State University in Kansas.

For More Information …

“The National Broadband Plan,” the Federal Communications Commission, March 16, 2010: http://www.broadband.gov/download-plan/