New Study Points Out Tax and Fee Impact of Title II Regulation

December 10, 2014

The Progressive Policy Institute has published a provocative policy brief examining the impact of reclassifying the Internet as a public utility.  This is the approach that President Obama urged in his November 10, 2014 video release on net neutrality.  Under the Institute’s scenario, the average annual increase in state and local fees levied on U.S. wireline and wireless broadband subscribers will be $67 and $72, respectively.  This results in an annual increase per household of roughly $17.  This is because, according to the brief “Although the state and federal governments collect these fees from broadband providers, history shows- and economic models of competitive markets predict – that the fees are passed along to consumers, just as they are now on telecommunications services.” Furthermore, according to the Institute, reclassification could add $15 billion in new user fees in addition to the $1.5 billion already planned to fund the E-rate program.  The Institute further argues that reclassification will also result in an adverse impact for consumers from less investment and slower innovation that would result from reclassification. Supporters of reclassification, such as Free Press, have called the report a “scare tactic” pointing out that the FCC could forbear from requiring broadband providers to pay into the fund.  The FCC could also pre-empt states from extending taxes and fees to retail broadband.  Congress could also extend the exemption on state sales taxes on the Internet. Because Title II is such a complicated regulation and partly due to the lack of specifics in President Obama’s video, it is hard to predict what reclassification of the Internet as a public utility would look like from a regulatory perspective.  Clearly in the current political environment, any regulations that resulted in additional taxation would be wildly unpopular.  This study injects a new factor to consider in the already crowded market of opinions on reclassification of the Internet but the points it raises are worth considering and merit further examination.

 

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