FCC Wants New Tax on Internet Service

The Federal Communications Commission issued a request in April  for comments on a proposal to tax broadband Internet service and funnel the additional revenue  to a subsidy the agency created last year to expand Internet access. Dozens of companies and trade associations weighed in, but the issue has largely been ignored by the mainstream media.

Numerous companies, including AT&T, Sprint and even Google support the idea.

“If members of Congress understood that the FCC is contemplating a broadband tax, they’d sit up and take notice,” said Derek Turner, research director for Free Press, a consumer advocacy group that opposes the tax.

Consumers already pay a fee on their landline and cellular phone bills to support the FCC’s Universal Service Fund, which was created to ensure that everyone in the country has access to telephone service.

Last year, the FCC took$4.5 billion out of the Universal Service Fund and turned it into a broadband Internet subsidy, called the Connect America Fund. The new fund would subsidize the construction of high-speed Internet networks for Americans who currently lack access, producing new customers for broadband providers without those providers having to actually invest in building those high-speed networks themselves.

Julius Genachowski, the FCC’s chairman, has made expanding broadband access his top priority. He argues that high-speed Internet is critical for succeeding in the 21st century economy and that expanding Internet access is the country’s next great infrastructure challenge.

In recent years, with more people sending emails instead of making long-distance phone calls, less money has been flowing into the program. The Universal Service fee has had to grow to a larger and larger portion of phone bills to compensate.

In addition to the broadband fee, the commission also sought comments on taxing text messages, as well as a flat fee on each phone line, instead of the current system, which is based on a portion of the revenue from interstate phone calls.

The FCC could run into legal problems with the Internet Tax Freedom Act, a 1998 law that bans the government from taxing Internet access, but the FCC has long argued that Universal Service is a fee that the providers choose to pass on to consumers and not a tax.

According to Google, taxing broadband service is preferable to taxing the kinds of online services it offers, like email or Google Voice.

“Saddling these offerings with new, direct USF contribution obligations is likely to restrict innovative options for all communications consumers and cause immediate and lasting harm to the users, pioneers, and innovators of Internet-based services,” Google argued.

While Turner says that imposing a fee on broadband access, even a small amount, would discourage many people from buying the service—the exact opposite outcome of what the FCC is trying to achieve.

“For folks who are thinking about adopting broadband, who have much lower incomes or don’t value broadband as much—that extra dollar on the margins will cause millions of people… to not adopt,” Turner said.



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