FCC “secret” tax plan a threat to the Internet

Erik Telford

Earlier this year, Congress extended the Internet Tax Freedom Act to prevent new state and local taxes on Internet broadband access. But now, a push by the progressives to implement so called “Net Neutrality” may undermine that effort by imposing a huge new fee on interstate broadband that would drastically hinder broadband providers’ ability to provide affordable, quality Internet access to consumers.

Congress has been remarkably consistent over the past two decades in its position against levying taxes on the Internet, but by all indications, the FCC isn’t keen to abide by the spirit of the laws on the books. In a recent article for Forbes, former FCC Commissioner Harold Furchtgott-Roth explains how the agency could push Net Neutrality by way of a very loose interpretation of Title II of the Communications Act of 1934.

At the beginning of this year, a U.S. appeals court threw out the FCC’s rules that would have required broadband providers to treat all Internet traffic equally. However, the FCC has since held “open Internet” or “network neutrality” proceedings to decide what sort of authority it can wield over broadband providers going forward.

One set of proposals currently under consideration would effectively classify Internet access services as “interstate telecommunications services” under Title II, which would allow the FCC to treat broadband access more like a public utility--effectively handing them exclusive regulatory control over broadband access.

However, by classifying broadband access services as ‘interstate telecommunications services’ broadband providers would then be required to pay FCC fees. With the fee structure currently at 16.1 percent, it’s likely to be the highest, one-time tax increase on the Internet.

The move would result in billions of dollars in new funding for the FCC, all without congressional authorization. While Congress could take action and pass new broadband rules for the FCC to abide by, it has yet to act. Should the FCC move to classify Internet access services as “interstate telecommunications services” under Title II, it would be problematic on two fronts.

Such a reclassification amounts to a power grab that gives the FCC unilateral regulatory powers, putting an entire sector of information and communications services in the hands of an unelected bureaucratic body. Supporters point out that the FCC could “forbear” from some of the new regulations that would come with reclassifying broadband, but there’s no reason to expect consumer-friendly policies to come out of that.

Imposing interstate telecommunications fees on broadband will restrict access for consumers and innovation among businesses. A 16.1 percent tax would result in a drastic cost increase for the big broadband companies, which would in turn be passed on to consumers. This would especially be felt by low-income consumers.

Congress, for all its faults, has set a reasonable precedent of letting the Internet and all the businesses associated with it run on a long leash. At a time when the web is one of the few consistently bright spots in our otherwise still-sluggish economy, the FCC would do well to take a cue from Capitol Hill and keep new taxes and fees completely out of the World Wide Web.

Erik Telford is Senior Vice President at the Franklin Center for Government & Public Integrity.