A case for broadband taxation

The Senate just passed its version of the no-Internet-tax bill last week, bringing the RBOCs' vision of a world without telecom taxes on DSL one step closer to reality (see story in Top News). This whole fracas over Internet taxation seems to be highlighting something very telling about the Internet age--something much more critical than the difference in the eyes of regulators between cable modems and DSL. In fact, at the risk of offending all you John McCain supporters and die-hard Libertarians, I'm willing to go out on a limb and say this whole ordeal has done nothing but show me the wisdom of taxing the Internet.

That's right. I think in this debate over parity, we've somehow and incorrectly assumed fairness means that everyone pays nothing instead of everyone paying the same.

Taxes on services or goods are ideally supposed to benefit things they levy. Gasoline taxes pay for highways and streets. Tobacco taxes pay for cancer-related health care. Airplane tickets fees pay for airport maintenance. At least, that's how it's all theoretically supposed to work. The Universal Service Fund is probably the best example of that kind of taxation at work: The fund--supported by carriers who pass the fees onto their customers--brings telecom services to the poor, to the isolated and other underserved areas of the country, and does so in a way that make those services affordable to the people who use them.

In addition to the contributions telcos make to the USF for every DSL line, DSL providers now face a myriad of local and state taxes that cable providers otherwise don't incur. I'm all for evening the playing field, but for all of the talk about creating a truly connected nation and bringing broadband to every man, woman and child, an all-out taxation ban on a service that is still physically inaccessible and fiscally unaffordable to a good deal of the populace doesn't seem like a good idea. And before I start hearing about how taxes would only increase the cost of service, I'd like to point you in the direction of the cable industry: Cable modems don't face the same taxes and USF charges DSL does, and cable broadband certainly isn't any cheaper.

Sure, the city of Chicago shouldn't charge taxes on broadband to help build a new stadium for the Bears. The USF shouldn't even charge carriers fees for broadband that goes to pay for telephony services. But if you tax a service with the ultimate goal of making that service universal, you've got what's called a public policy, and a good one at that. Sure, it's another regulation. Sure, it's another tax. But it wasn't a regulator or a free-spending, big-government type who invented the idea of Universal Service in the first place. It was Theodore Vail, the first chairman of AT&T.

E-mail me at kfitchard@primediabusiness.com.