On tax day before the Senate Commerce Committee, the Federal Communications Commission (FCC) proposed the National Broadband Plan that would expand the Universal Service Fund (USF) tax on landline and cell phones to include broadband internet. The FCC estimates the National Broadband Plan will cost $350 billion to develop, but that the plan will pay for itself. The goal is to tax all types of telecom service, including Internet service, and use this pool of money to subsidize the cost of broadband.
FCC Chairman Julius Genachowski testified, “It proposes a once-in-a-generation transformation of the Universal Service Fund from yesterday’s technology to tomorrow’s.”
Under the current USF tax rate the Internet tax will be at least 15.3% of your bill. The plan sets a goal of capping the tax at this year’s level to promote fiscal responsibility. However, critics are skeptical because President Obama has increased the USF tax rate by 61% since he took office.
First, the plan expressly calls for a digital goods tax. Since state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment. In fact, 18 states have already enacted laws to tax digital goods and services. Such taxes range from downloading music, books, and ringtones within state borders. The National Broadband Plan would create a national framework and could spread these state laws nationwide, permitting all states to begin taxing digital goods and even allowing states to collect taxes on e-commerce made across their borders. Critics argue that taxes on e-commerce would be deemed unconstitutional by the U.S. Supreme Court because it violates the Commerce Clause of the U.S. Constitution (Quill v. North Dakota).
Secondly, the National Broadband Plan calls for significant expansion of the Universal Service Fund (USF), a tax on urban and suburban consumers redistributed predominantly to rural areas. The FCC seeks to reform current universal service mechanisms to support deployment of broadband and voice.
Third, the plan calls for Congress to consider providing optional public funding. Some critics are afraid that this proposal is a mere continuation of the Obama spending spree. However, supporters are confident that this proposal is a way to increase revenue to support access across the country to fast growing and new technology.