Time to End USF Tax

Published May 31, 2016

Poor government stewardship of taxpayer dollars isn’t anything new, which is why many new revelations of fiscal irresponsibility are met with little but a shrug and an “Oh, well, what are you gonna do?” sense of resignation.

But what if I told you one government program—the Universal Service Fund, in this instance—spends on administrative costs nearly 60 percent of the $7.5 billion it rakes in from telephone taxes?

That’s $4.5 billion. If a reputable business in the private sector operated this inefficiently, a responsible board of directors would shut it down.

And yet the USF amasses vast sums of monies through taxes gussied up as “fees” in truly Orwellian fashion. And blows it on the equivalent of window treatments and pedicures for the family pet.

For his Technology Policy Institute study released late last month (“The Universal Service Fund: What Do High-Cost Subsidies Subsidize?”), Scott Wallsten analyzed data submitted by 1,400 recipients of USF subsidies from 1998 to 2008. “This analysis suggests that on average $0.59 of every dollar in high-cost subsidies given to recipient ILECs [Incumbent Local Exchange Carriers] goes to inflated overhead expenses.”

Wallsten adds, “That result holds even controlling for firm size and firm fixed effects. That is, more than half of all high-cost funds end up paying for goods and services that are unrelated to the goals of the program.”

This state of affairs is madness. In fact, there was more logic poured into the cracked cups at the Mad Hatter’s tea party.

The purpose of the USF is to provide local phone service to consumers who otherwise couldn’t afford it. Begun in 1997 as mandated by the 1996 Telecommunications Act, the fund raised $3.8 billion in 2008 through a 3.2 percent long-distance phone service tax. By 2008 this tiny taste of taxpayer blood grew to a ravenous hunger: 10.9 percent. That fee hovers near a gluttonous 15 percent today.

Even worse, the powers that be at the White House and Federal Communications Commission have proposed redirecting the USF from phone service to broadband buildout in rural areas, even though expansion of Internet service has done quite well without government handouts. The dramatic advances in telecommunications technology and service since the creation of these funds have made them an unnecessary and costly burden on taxpayers.

The FCC proposal raises concerns that the same endemic misallocation of funds will be transported to this new endeavor. Thanks to technological advances, basic telephone service is extremely affordable. The press to extend the USF to broadband looks suspiciously like nothing more than an excuse to keep the taxes flowing and increasing.

The best thing to do with the USF is to end it altogether.

Bruce Edward Walker ([email protected]) is managing editor of The Heartland Institute’s InfoTech & Telecom News.