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The Federal Communications Commission (FCC) is considering a proposal that would create a new tax on broadband Internet service. The new tax would be designated to fund the Connect America Fund (CAF) which was
created in 2011 when the FCC took $4.5 billion from the Universal Service Fund (USF) which was designed to provide advanced telecommunications services. This was done in an attempt to further expand deployment of broadband internet services to areas of the country that the agency believes are underserved.
The FCC’s proposal would expand the CAF by creating a new “fee” tacked onto the bills of all broadband internet connections nationwide even though the vast majority of Americans (around 95 percent) already have access to some form of broadband coverage.
According to The Hill, the FCC issued a request for comments on the proposal in April. While dozens of companies and trade associations voiced their opinions on the issue of a broadband tax, the issue has not resonated with the public until recently.
Steven Titch, a policy advisor on telecom issues at The Heartland Institute argues that the new broadband fund is an outdated subsidy that will slow, and not encourage new broadband implementation and innovation.
“Whether you call it the Universal Service Fund or the Connect America Fund, it’s still a massive subsidy mechanism based on 50-year-old notions about the cost of rural telecommunications,” argues Titch. “As structured, the Connect America Fund will slow new investment in potentially competitive technologies while allowing incumbent rural carriers to profit from the grace of government largesse, not through their own innovation.”
Titch also questions whether the use of the USF model is appropriate for improving broadband internet deployment. “While ratcheting up the taxes and subsidies, the FCC still has not adequately addressed the reason why rural universal service fees continue to increase even as rural broadband penetration declines. The FCC also refuses to consider the impact advances in wireless and satellite technologies might have in rural areas, and whether market forces can actually deliver them without subsidy.”
Using the USF as a model for the CAF is problematic given its mixed history of success in improving telecommunications services nationwide. In a study examining the revenues and expenditures of the USF between 1998 and 2008, Scott Wallsten of the Technology Policy Institute found that around $0.59 of every dollar went to administrative and overhead costs rather than actual services.
Rick Moran of the American Thinker argued in a blog post on the broadband internet tax that shifting funds from the USF is inappropriate could lead to a greater government role in controlling the internet.
“The FCC had no business taking money from a fund dedicated to expand phone service and creating a broadband internet subsidy,” wrote Moran. “Creating another tax to subsidize internet expansion for large companies is unnecessary and will only lead to greater control of the Internet by government. Congress should wake up and nix this effort before it gets started.”
Steve Stanek, a Research Fellow, Budget and Tax Policy at The Heartland Institute contends that the broadband tax is simply crony capitalism.
“If expanding broadband is so important, surely money could be shifted from the crony capitalist ethanol subsidies, sugar tariffs, farm bill, defense budget, commerce department, energy department, or numberless other government spending programs and agencies. But that would mean setting spending priorities, which the federal government hasn’t done since it last had a budget more than three years ago,” said Stanek. “The government instead proposes taking billions more dollars out of nearly all Americans’ pockets to benefit a relative handful of other Americans.”
CAF is an unnecessary slush fund which actually slows telecom implementation and innovation and whose effectiveness pales in comparison to the private market’s drive to grow the nation’s broadband infrastructure. The proposed broadband Internet tax would raise billions of dollars for new government expenditures that will be paid for by broadband users everywhere. This would put an unnecessary tax on consumers in exchange for trying to fix a problem that is already being fixed by the market.