First, the plan expressly calls for a digital goods tax:
Recognizing that 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. (pg. 58)
Instead, how about “not enacting a tax would remove one barrier to online entrepreneurship and investment”? To date, 18 states have enacted laws to tax digital goods and services, like downloaded music, books, and ringtones, within their own borders. A national framework could amount to spreading this nationwide, permitting all states to begin taxing digital goods and even allowing states to collect taxes on e-commerce made across their borders (something currently deemed unconstitutional by the U.S. Supreme Court in 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. Currently, phone companies, including wireless and VoIP, “contribute” to the fund (read: are involuntarily taxed and pass the tax onto consumers). The goal is to expand this to all types of telecom service, including Internet service, and to shift this pool of money toward subsidizing the cost of broadband. The executive summary states that the FCC will “reform current universal service mechanisms to support deployment of broadband and voice,” and adds on pg. 136:
Stage Two: accelerate reform (2012–2016)
- The FCC should broaden the universal service contribution base.
Translation: tax Internet access to fund the USF as well. While it goes on to state that “the FCC should manage the total size of the USF to remain close to its current size,” this goal of fiscal responsibility is clearly last on the list of priorities. Five days ago, just before the plan was announced, the FCC raised the USF tax to 15.3% – a record high. The USF started at only about 5.5% in 1998 and rose by 4% over the next decade. Since President Obama’s new FCC took over in 2009, it’s risen by 5.8%.
Third, the plan calls for Congress to “consider providing optional public funding…such as a few billion dollars per year over a two to three year period.” You know, tax-and-spend just a few extra billion here, a few billion there. Whatever gets it done.
However, on the bright side, the plan does call for expanding the Research and Experimentation (R&E) tax credit (pg. 122) to help service providers expand private investment in broadband. The report notes that a permanent 5% R&E credit would lead to a 10% to 15% increase in private spending to boost broadband research and deployment.
So, there you have it. At best, you’ll have a 15.3% tax on your Internet service and a tax every time you buy a digital good online. Tax credits like the R&E incent broadband deployment, while the digital goods and USF tax hikes simply raise the overall cost of service and activity in the digital realm, per the FCC’s own admission. One can’t help but wonder how higher taxes on consumers and industry – instead of more tax credits – will effectively expand broadband access.