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Alternatives considered are to tax text messages or have a higher flat fee on phone lines

So far an "internet tax" has remained a contentious issue.  Efforts to tax the physical service have flopped in Congress and are not scheduled for discussion until at least 2014.  Meanwhile, states have made headway in forcing online retailers to pay sales taxes, with some Congressional Democrats are calling for a nation policy enforcing sales tax on the internet.  Such efforts are generally tremendously unpopular among the general U.S. population who already feel overtaxed.

I. Taxing the Pipes

But President Barack Obama's iteration of the U.S. Federal Communications Commission (FCC) is nonetheless considering a tax on internet services, which would funnel money into the Connect America Fund -- the fund commonly referred to as the president's "national broadband" plan.

The Fund aims to connect rural regions and pump up service speeds in existing regions.

But to get there the FCC says it may need to levy a tax on existing services, a proposal it's currently accepting public feedback [PDF] on.

The Telecommunications Act of 1996, signed into law by President Bill Clinton (D), was the precursor to the current fund.  It created the Universal Services Fund (USF), a fund paid for by taxes on phone bills.  The program was a mild success; bring telephone service to many new regions.  At first it was well funded and the taxes remained small, thanks to people making more (expensive) long distance calls in the 1990s.

As IM, emails, and video chats replaced long distance calls over the last decade, the FCC has had to raise phone bill taxes to keep up with the USF funding requirements -- including increases under President George W. Bush (R).

Late last year President Obama installed a series of changes, overhauling the fund as the "Connect America Fund" and changing its objective from increasing landline telephone connections to increasing broadband internet connections.  But the new program is in jeopardy as many people are ditching the landline and trimming their phone plans.

FCC internet tax
The FCC wants a new internet tax to make up for a dwindling funding from phone line taxes.
[Image Source: Hang the Bankers]

The FCC's proposed alternatives to the internet service tax include a tax on cell phone text messages, or changing over to a flat tax fee on each phone line (currently phone taxes are collected in a more Constitutionally friendly manner, only taxing interstate phone calls).

II. Plan Has Some Big Supporters

Julius Genachowski, commissioner of the FCC comments, "Today we propose three goals for contribution reform: efficiency, fairness, and sustainability.  And we underscore that any reforms to the contribution system must safeguard core Commission objectives, including the promotion of broadband innovation, investment, and adoption."

Internet software service providers like Google Inc. (GOOG) are receptive of the plan, saying it makes sense than taxing internet software services like Gmail.  Writes Google in its response to the plan, "[Google] strongly supports expanding the [Universal Service Fund] contribution base to include broadband Internet access services."

"Saddling these offerings with new, direct USF contribution obligations [from internet software service providers] 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."

internet pipes
Google supports the proposal to "tax the pipes", but it won't likely be officially floated as this is an election year. [Image Source: Simon Norfolk]

Despite Google's enthusiasm for "taxing the pipes", others take quite the opposite perspective.  Derek Turner, research director for Free Press comments to The Hill, "If members of Congress understood that the FCC is contemplating a broadband tax, they'd sit up and take notice.  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.  I don't anticipate that the chairman would move to adopt a drastic overhaul ahead of the election."

Indeed, in an election year the Obama administration will likely be wary of levying a new tax on U.S. consumers.  Thus the decision of whether to pull the trigger on the new broadband tax will likely be made early next year by the next President -- be it Obama or Mitt Romney.

Sources: FCC [PDF], The Hill

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By OCedHrt on 8/29/2012 6:34:36 AM , Rating: 2

How about 40% don't have broadband, and 30% don't have internet. And btw, it is typically the Republican leaning districts that do not have broadband or internet. This is basically converting from a tax on all (phone lines) to a tax on the more liberal (those in city centers, densely populated states, etc) to for the benefit of the rural conservatives.

And then you guys in the middle of nowhere want to cry not fair?

By Reclaimer77 on 8/29/2012 7:09:20 AM , Rating: 2
How about 40% don't have broadband, and 30% don't have internet.

That's bull. Satellite broadband is available nation wide. To say 40% of this country doesn't have broadband, a clearly bogus number, doesn't mean they don't have the option. It's obviously by choice.

This is basically converting from a tax on all (phone lines) to a tax on the more liberal (those in city centers, densely populated states, etc) to for the benefit of the rural conservatives. And then you guys in the middle of nowhere want to cry not fair?

I don't think you understand Conservatism very much if you think we would support a tax just because it's hitting the "other guy". That's an inherently Liberal point of view. Conservatives don't like using taxation to punish others or put one class of people against another.

By conquistadorst on 8/29/2012 9:01:03 AM , Rating: 2
The same article you linked also points out that of the supposed 40% that don't have broadband in rural areas, only *11%* report it was because it's not available (let's just ignore satellite for sake of argument). In other words this would be a tax to on 96% of people for the 4% that don't have it. I think valid questions are:

Does that 4% really need it?
Will they benefit from obtaining it?
Will everyone benefit when that 4% obtain it?
Do we never need to draw a line where we're not required to provide all services for all people?

What worries me is if someone actually says "yes" to all 4 questions for a small 4% sliver, they'd also likely want to justify the costs it would take to upgrade, subsidize, and train the 41% in categories of those who don't have computers, too expensive, or unskilled.

It's no wonder we're racking up so many charges on our Chinese credit cards...

By sorry dog on 8/29/2012 4:36:07 PM , Rating: 2
I used to sell broadband in a somewhat rural area.

Lemme tell you guys, it's hard to sell internet to somebody who doesn't own a computer, or doesn't know how to turn it on. That demographic is not present here for obvious reasons, but that fact is that some people are perfectly happy not having internet access.

As for the increasing speed part...I see a large percentage opt for internet that is 1/10 the speed and pay $20 instead of $30...and they are happy with that decision because they don't use much bandwidth.

I really think this decision is just to further life into another government project that has a bad history of cost to societal benefits just keep because it makes feel good headlines but happens to benefit some of the poor and a few campaign donors at the same time.

By The Saxophonist on 8/31/2012 7:50:09 PM , Rating: 2
Yes, we do. The less taxes, the better, no matter if they are on Liberals or Conservatives. Why don't we stop spending money on crap we don't need like Obamacare? Then we can LOWER taxes. Bish bash bosh. we're done.

"Mac OS X is like living in a farmhouse in the country with no locks, and Windows is living in a house with bars on the windows in the bad part of town." -- Charlie Miller

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