How Much Tax?

by on October 30, 2014 · 0 comments

As I and others have recently noted, if the Federal Communications Commission reclassifies broadband Internet access as a “telecommunications” service, broadband would automatically become subject to the federal Universal Service tax—currently 16.1%, or more than twice the highest state sales tax (California–7.5%), according to the Tax Foundation.

Erik Telford, writing in The Detroit News, has reached a similar conclusion.

U.S. wireline broadband revenue rose to $43 billion in 2012 from $41 billion in 2011, according to one estimate. “Total U.S. mobile data revenue hit $90 billion in 2013 and is expected to rise above $100 billion this year,” according to another estimate.  Assuming that the wireline and wireless broadband industries as a whole earn approximately $150 billion this year, the current 16.1% Universal Service Contribution Factor would generate over $24 billion in new revenue for government programs administered by the FCC if broadband were defined as a telecommunications service.

The Census Bureau reports that there were approximately 90 million households with Internet use at home in 2012. Wireline broadband providers would have to collect approximately $89 from each one of those households in order to satisfy a 16.1% tax liability on earnings of $50 billion. There were over 117 million smartphone users over the age of 15 in 2011, according to the Census Bureau. Smartphones would account for the bulk of mobile data revenue. Mobile broadband providers would have to collect approximately $137 from each of those smartphone users to shoulder a tax liability of 16.1% on earnings of $100 billion. Continue reading →

Evan Selinger, a super-sharp philosopher of technology up at the Rochester Institute of Technology, is always alerting me to interesting new essays and articles and this week he brought another important piece to my attention. It’s a short new article by Arturo Casadevall, Don Howard, and Michael J. Imperiale, entitled, “The Apocalypse as a Rhetorical Device in the Influenza Virus Gain-of-Function Debate.” The essay touches on something near and dear to my own heart: the misuse of rhetoric in debates over the risk trade-offs associated with new technology and inventions. Casadevall, Howard, and Imperiale seek to “focus on the rhetorical devices used in the debate [over infectious disease experiments] with the hope that an analysis of how the arguments are being framed can help the discussion.”

They note that “humans are notoriously poor at assessing future benefits and risks” and that this makes many people susceptible to rhetorical ploys based on the artificial inflation of risks. Their particular focus in this essay is the debate over so-called “gain-of-function” (GOF) experiments involving influenza virus, but what they have to say here about how rhetoric is being misused in that field is equally applicable to many other fields of science and the policy debates surrounding various issues. The last two paragraphs of their essay are masterful and deserve everyone’s attention: Continue reading →

Would the Federal Communications Commission expose broadband Internet access services to tax rates of at least 16.6% of every dollar spent on international and interstate data transfers—and averaging 11.23% on transfers within a particular state and locality—if it reclassifies broadband as a telecommunications service pursuant to Title II of the Communications Act of 1934?

As former FCC Commissioner Harold Furchtgott-Roth notes in a recent Forbes column, the Internet Tax Freedom Act only prohibits state and local taxes on Internet access.  It says nothing about federal user fees.  The House Energy & Commerce Committee report accompanying the “Permanent Internet Tax Freedom Act” (H.R. 3086) makes this distinction clear.

The law specifies that it does not prohibit the collection of the 911 access or Universal Service Fund (USF) fees. The USF is imposed on telephone service rather than Internet access anyway, although the FCC periodically contemplates broadening the base to include data services.

The USF fee applies to all interstate and international telecommunications revenues.  If the FCC reclassifies broadband Internet access as a telecommunications service in the Open Internet Proceeding, the USF fee would automatically apply unless and until the commission concluded a separate rulemaking proceeding to exempt Internet access.  The Universal Service Contribution Factor is not insignificant. Last month, the commission increased it to 16.1%.  According to Furchtgott-Roth,

At the current 16.1% fee structure, it would be perhaps the largest, one-time tax increase on the Internet.  The FCC would have many billions of dollars of expanded revenue base to fund new programs without, according to the FCC, any need for congressional authorization.

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Last week, it was my pleasure to speak at a Cato Institute event on “The End of Transit and the Beginning of the New Mobility: Policy Implications of Self-Driving Cars.” I followed Cato Institute Senior Fellow Randal O’Toole and Marc Scribner, a Research Fellow at the Competitive Enterprise Institute. They provided a broad and quite excellent overview of all the major issues at play in the debate over driverless cars. I highly recommend you read the excellent papers that Randal and Marc have published on these issues.

My role on the panel was to do a deeper dive into the privacy and security implications of not just the autonomous vehicles of our future, but also the intelligent vehicle technologies of the present. I discussed these issues in greater detail in my recent Mercatus Center working paper, “Removing Roadblocks to Intelligent Vehicles and Driverless Cars,” which was co-authored with Ryan Hagemann. (That article will appear in a forthcoming edition of the Wake Forest Journal of Law & Policy.)  I’ve embedded the video of the event down below (my remarks begin at the 38:15 mark) as well as my speaking notes. Again, please consult the longer paper for details.


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Good news! As the ITU’s Plenipotentiary Conference gets underway in Busan, Korea, the heads of delegation have met and decided to open up access to some of the documents associated with the meeting. At this time, it is only the documents that are classified as “contributions“—other documents such as meeting agendas, background information, and terms of reference remain password protected. It’s not clear yet whether that is an oversight or an intentional distinction. While I would prefer all documents to be publicly available, this is a very welcome development. It is gratifying to see the ITU membership taking transparency seriously.

Special thanks are due to ITU Secretary-General Hamadoun Touré. When Jerry Brito and I launched WCITLeaks in 2012, at first, the ITU took a very defensive posture. But after the WCIT, the Secretary-General demonstrated tremendous leadership by becoming a real advocate for transparency and reform. I am told that he was instrumental in convincing the heads of delegation to open up access to Plenipot documents. For that, Dr. Touré has my sincere thanks—I would be happy to buy him a congratulatory drink when I arrive in Busan, although I doubt his schedule would permit it.

It’s worth noting that this decision only applies to the Plenipotentiary conference. The US has a proposal that will be considered at the conference to make something like this arrangement permanent, to instruct the incoming SG to develop a policy of open access to all ITU meeting documents. That is a development that I will continue to watch closely.

Although SOPA was ignominiously defeated in 2012, the content industry never really gave up on the basic idea of breaking the Internet in order to combat content piracy. The industry now claims that a major cause of piracy is search engines returning results that direct users to pirated content. To combat this, they would like to regulate search engine results to prevent them from linking to sites that contain pirated music and movies.

This idea is problematic on many levels. First, there is very little evidence that content piracy is a serious concern in objective economic terms. Most content pirates would not, but for the availability of pirated content, empty their wallets to incentivize the creation of more movies and music. As Ian Robinson and I explain in our recent paper, industry estimates of the jobs created by intellectual property are absurd. Second, there are serious free speech implications associated with regulating search engine results. Search engines perform an information distribution role similar to that of newspapers, and they have an editorial voice. They deserve protection from censorship as long as they are not hosting the pirated material themselves. Third, as anyone who knows anything about the Internet knows, nobody uses the major search engines to look for pirated content. The serious pirates go straight to sites that specialize in piracy. Fourth, this is all part of a desperate attempt by the content industry to avoid modernizing and offering more of their content online through convenient packages such as Netflix.

As if these were not sufficient reason to reject the idea of “SOPA for Search Engines,” Google has now announced that they will be directing users to legitimate digital content if it is available on Netflix, Amazon, Google Play, Spotify, or other online services. The content industry now has no excuse—if they make their music and movies available in convenient form, users will see links to legitimate content even if they search for pirated versions.

star-trek-search-results

Google also says they will be using DMCA takedown notices as an input into search rankings and autocomplete suggestions, demoting sites and terms that are associated with piracy. This is above and beyond what Google needs to do, and in fact raises some concerns about fraudulent DMCA takedown notices that could chill free expression—such as when CBS issued a takedown of John McCain’s campaign ad on YouTube even though it was likely legal under fair use. Google will have to carefully monitor the DMCA takedown process for abuse. But in any case, these moves by Google should once and for all put the nail in the coffin of the idea that we should compromise the integrity of search results through government regulation for the sake of fighting a piracy problem that is not that serious in the first place.

DroneIf you want a devastating portrait of how well-intentioned regulation sometimes has profoundly deleterious unintended consequences, look no further than the Federal Aviation Administration’s (FAA) current ban on commercial drones in domestic airspace. As Jack Nicas reports in a story in today’s Wall Street Journal (“Regulation Clips Wings of U.S. Drone Makers“), the FAA’s heavy-handed regulatory regime is stifling America’s ability to innovate in this space and remain competitive internationally. As Nicas notes:

as unmanned aircraft enter private industry—for purposes as varied as filming movies, inspecting wind farms and herding cattle—many U.S. drone entrepreneurs are finding it hard to get off the ground, even as rivals in Europe, Canada, Australia and China are taking off.

The reason, according to interviews with two-dozen drone makers, sellers and users across the world: regulation. The FAA has banned all but a handful of private-sector drones in the U.S. while it completes rules for them, expected in the next several years. That policy has stifled the U.S. drone market and driven operators underground, where it is difficult to find funding, insurance and customers.

Outside the U.S., relatively accommodating policies have fueled a commercial-drone boom. Foreign drone makers have fed those markets, while U.S. export rules have generally kept many American manufacturers from serving them.

Of course, the FAA simply responds that they are looking out for the safety of the skies and that we shouldn’t blame them. Continue reading →

Last week, I participated in a program co-sponsored by the Progressive Policy Institute, the Lisbon Council, and the Georgetown Center for Business and Public Policy on “Growing the Transatlantic Digital Economy.”

The complete program, including keynote remarks from EU VP Neelie Kroes and U.S. Under Secretary of State Catherine A. Novelli, is available below.

My remarks reviewed worrying signs of old-style interventionist trade practices creeping into the digital economy in new guises, and urged traditional governments to stay the course (or correct it) on leaving the Internet ecosystem largely to its own organic forms of regulation and market correctives: Continue reading →

The ITU is holding its quadrennial Plenipotentiary Conference in Busan, South Korea from October 20 to November 7, 2014. The Plenipot, as it is called, is the ITU’s “supreme organ” (a funny term that I did not make up). It represents the highest level of decision making at the ITU. As it has for the last several ITU conferences, WCITLeaks will host leaked documents related to the Plenipot.

For those interested in transparency at the ITU, two interesting developments are worth reporting. On the first day of the conference, the heads of delegation will meet to decide whether documents related to the conference should be available to the public directly through the TIES system without a password. All of the documents associated with the Plenipot are already available in English on WCITLeaks, but direct public access would have the virtue of including those in the world who do not speak English but do speak one of the other official UN languages. Considering this additional benefit of inclusion, I hope that the heads of delegation will seriously consider the advantages of adopting a more open model for document access during this Plenipot. If you would like to contact the head of delegation for your country, you can find their names in this document. A polite email asking them to support open access to ITU documents might not hurt.

In addition, at the meeting, the ITU membership will consider a proposal from the United States to, as a rule, provide open access to all meeting documents.

open-access-ITU

This is what WCITLeaks has always supported—putting ourselves out of business. As the US proposal notes, the ITU Secretariat has conducted a study finding that other UN agencies are much more forthcoming in terms of public access to their documents. A more transparent ITU is in everyone’s interest—including the ITU’s. This Plenipot has the potential to remedy a serious deficiency with the institution; I’m cheering for them and hoping they get it right.

The sharing economy is growing faster than ever and becoming a hot policy topic these days. I’ve been fielding a lot of media calls lately about the nature of the sharing economy and how it should be regulated. (See latest clip below from the Stossel show on Fox Business Network.) Thus, I sketched out some general thoughts about the issue and thought I would share them here, along with some helpful additional reading I have come across while researching the issue. I’d welcome comments on this outline as well as suggestions for additional reading. (Note: I’ve also embedded some useful images from Jeremiah Owyang of Crowd Companies.)

1) Just because policymakers claim that regulation is meant to protect consumers does not mean it actually does so.

  1. Cronyism/ Rent-seeking: Regulation is often “captured” by powerful and politically well-connected incumbents and used to their own benefit. (+ Lobbying activity creates deadweight losses for society.)
  2. Innovation-killing: Regulations become a formidable barrier to new innovation, entry, and entrepreneurism.
  3. Unintended consequences: Instead of resulting in lower prices & better service, the opposite often happens: Higher prices & lower quality service. (Example: Painting all cabs same color destroying branding & ability to differentiate).

Continue reading →