If It Stops Moving, Subsidize It

by on January 6, 2009 · 12 comments

Naturally, now that government plans to intervene in the economy with a massive stimulus package, everyone wants their “fair” share. Robert D. Atkinson, president of the Information Technology and Innovation Foundation, is arguing for digitized health records, a smart power grid and faster broadband connections:

While creating jobs by upgrading the nation’s physical infrastructure may help in the short term, Mr. Atkinson says, “there’s another category of stimulus you could call innovation or digital stimulus — ‘stimovation,’ as a colleague has referred to it.” Although many economists believe that a stimulus package must be timely, targeted and temporary, Mr. Atkinson’s organization argues that a fourth adjective — transformative — may be the most important. Transformative stimulus investments, he said, lead to economic growth that wouldn’t be there otherwise.

A new report by the Information Technology and Innovation Foundation [to be released Wednesday] presents the case for investing $30 billion in the nation’s digital infrastructure, including health information technology, broadband Internet access and the so-called smart grid, an effort to infuse detailed digital intelligence into the electricity distribution grid.

And a Silicon Valley petition calls for a tax credit for companies that spend more than 80 percent of what they had been spending annually on information technology like computers and software.

Usually when politicians hand out targeted tax breaks or grants there are strings attached.

Free Press is already proposing that the Internet services receiving subsidies “must be an open, freely competitive platform for ideas and commerce.” There is a possibility no one would accept the subsidies to build the network Free Press envisions.

Remember last summer when the FCC tried to auction some spectrum in the 700 MHz band with the caveat that “Whoever wins this spectrum has to provide … truly open broadband network — one that will open the door to a lot of innovative services for consumers.” Bidders could have received a subsidy, in effect, because they could choose their bid; they could submit lower bids for the spectrum that would have come with restrictions than they might be willing to consider for similar spectrum unencumbered by such conditions. No one bought it.

And lobbyists for various industry segments are proposing to define the broadband services which would qualify for the tax breaks or grants according to transmission speed. Of course it would be nice if everyone could have the best, i.e., fiber to the home, but that isn’t practical in many parts of the country. Should policymakers disqualify “inferior” technologies because we don’t consider them cutting-edge, even if they are currently best suited to make a real difference in the lives of people who happen to live in places where the “best” would be prohibitively expensive?

Professor Andrew Odlyzko posited in a 2003 paper that fiber to the home “may never become widespread … there is a substantial probability that residential demands might be met by fixed wireless services.”

Then there is the fact someone has to pay for targeted tax relief and grants.

Former Senate Finance Chairman Russell Long (D-LA) once joked, “Don’t tax you, don’t tax me, tax that fellow behind the tree.” He was referring to the fact someone must pay taxes, but Congress can either impose low rates on everyone or high rates on a few people.

Targeted goodies have a way of multiplying as various interest groups come forward with clever arguments for still more targeted benefits. Congress wants to be “fair,” so it enacts more targeted subsidies. But basic tax rates rise and/or new things are taxed as Congress tries to reduce deficit spending. Finally, Congress is forced to eliminate preferences so it can reduce taxes, as it did with the Tax Reform Act of 1986. But at every step of the process there are winners and losers chosen by politicians and bureaucrats.

The alternative is to let private investors decide how to invest society’s resources. Of course if they are successful they may become wealthy. But if they fail they may have to declare bankruptcy. The penalty for failure is severe. Politicians and bureaucrats, on the other hand, are rewarded either way. They merely wait for the next “client” to come along.

Whether or not politicians and bureaucrats are our “best and brightest,” they are captive to political pressure. One should never automatically assume politicians and bureaucrats will aim primarily to help the most needy because they are the most deserving, the middle class because they are the most numerous or the most influential because they are the wealthiest. Politicians and bureaucrats only have to convince a majority feel they are gaining something whether they are or not.

If lower taxes would be good for health information technology, broadband Internet access, the so-called smart grid, computers and software; then — let’s face it — lower taxes would be good for the whole economy.

That said, telecommunications services are not subject to the same taxes other businesses pay. They remit higher taxes owing to the fact they used to be captive ratepayers because they were once monopolies or luxuries. So, for example, even though the sales tax in the District of Columbia is 5.75%, wireless services are taxed 15.71% (this includes a 4.19% federal tax to subsidize phone service in rural areas and computers and Internet access for schools, libraries and rural health care facilities).

Maybe the federal government ought to subsidize those things directly and states and localities ought to apply only their sales tax to telecommunications services — which might lower the price of telecommunications services and stimulate demand for broadband offerings?

Or maybe the objective is not to get broadband to the people but to increase broadband taxes?

Like Ronald Reagan said, “Government’s view of the economy [can] be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

  • sblgeomatics

    nice post. thanks for sharing.
    regards
    http://www.sblgis.com/about_us.aspx

  • MikeRT

    Free Press is already proposing that the Internet services receiving subsidies “must be an open, freely competitive platform for ideas and commerce.” There is a possibility no one would accept the subsidies to build the network Free Press envisions.

    Libertarians can learn something from this: poison the dangling fruit and people won't eat it. Eventually, they'll stop asking for it altogether.

  • Brett Glass

    Unfortunately, Free Press' definition of “open” really means, “operated according to the business model we dictate.” And that business model is a money loser; forcing ISPs to conform to it would put them out of business in a hurry.

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