Don’t Tax the Internet

Some members of Congress want to tax the Internet, and they’re trying to do it under the guise of “telecom reform.” That’s a trick Americans won’t like. It’s time to send Washington a message, loud and clear: hands off the Internet.

During hearings on a government tax and welfare program called the Universal Service Fund (USF), Senate Commerce Committee Chairman Ted Stevens (R-Alaska) sang its praises. “Without Universal Service, just having a dial tone would average about US$200 per month” for some Alaskan residents, he said.

USF has long been a wealth transfer from cities to rural areas, but now that broadband services are being deployed all over the country, someone should tell Senator Stevens that the rationale for the subsidy is gone. Indeed, according to new numbers from the Pew Internet and American Life Project, adoption in rural areas is now occurring at a faster pace than in more populated regions. This should make it a no-brainer to phase out the telecommunications tax and welfare system, but that’s not what some powerful senators want to do.

Wasting Cash

Instead, several senators said they wanted to apply USF to the information highway, essentially taxing the Net. That should make American netizens as nervous as cats in a room full of rocking chairs. If government taxes the Net, it will discourage investment, slow connection speeds and cost consumers extra money. Judging from past experience, that money will be wasted on inefficient and corrupt programs.

Consider that the nation’s USF budget has nearly doubled in the last eight years, tripling the “telecom tax” on long-distance calling providers and raising telephone costs for consumers. Given that the fund lacks oversight and is subject to massive waste and abuse, one might be tempted to call it “Universal Scam Fund.”

For example, federal auditors recently found that school officials in Southern California squandered more than $2 million in USF E-Rate funds to purchase personal laptop computers for faculty members. And it gets worse.

In 2004, the FCC audited 100 E-Rate recipients and found that one-third were non-compliant with government guidelines and many were suspected of scams such as bid rigging, false reporting and other kickback schemes with tech vendors. Indeed, the system seems so open to abuse that it has been alleged that the Gambino crime family used a Missouri-based E-Rate service provider to defraud the program out of nearly $22 million.

Fixing the System

That’s not the kind of program that should continue, let alone be applied to a new and innovative platform like the Internet. Yet even with these problems, many analysts are skeptical that the fund will ever disappear.

It seems that too many people with political friends are dependent on the system. Recently, Federal Communications Commission Chairman Kevin Martin showed signs of supporting what has been called a “numbers-based” approach, in which anyone with a phone number, including Voice Over Internet Protocol (VoIP) would pay into the fund.

If Congress is serious about reforming telecommunications, its members should work towards fixing broken systems rather than applying them to new technologies. This is particularly true when broadband is continuing to roll out across the country, making telephone services free or very low-cost.

America is already ranked a lowly 16th in broadband deployment, and moves to saddle the medium with old and dysfunctional programs will only make it worse. That’s not telecom reform, only a sneaky move at new taxes and regulation.

USF is as relevant as a horse and buggy, but carries Lamborghini-style costs. Americans should take a stand and e-mail their representatives telling them not to tax the Net. If Americans take no action, their e-mail service might soon become a lot more expensive.

Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.

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