August 2011

Internet Taxes, “Main Street Fairness” & the Origin-Based Alternative

by on August 2, 2011 · 4 comments

The debate over the imposition of sales tax collection obligations on interstate vendors is heating up again at the federal level with the introduction of S. 1452, “The Main Street Fairness Act.” [pdf]  The measure would give congressional blessing to a multistate compact that would let states impose sales taxes on interstate commerce, something usually blocked by the Commerce Clause of the U.S. Constitution.  Senator Dick Durbin (D-IL) introduced the bill in the Senate along with Tim Johnson (D-SD) and Jack Reed (D-RI).  The measure is being sponsored in the House of Representatives by John Conyers (D-MI) and Peter Welch (D-VT). At this time, there are no Republican co-sponsors even though Sen. Mike Enzi was rumored to be a considered co-sponsoring the measure before introduction.

Without any Republicans on board the effort, the measure may not advance very far in Congress. Nonetheless, to the extent the measure gets any traction, it is worth itemizing a few of the problems with this approach. My Mercatus Center colleague Veronique de Rugy and I have done some work on this issue together in the past and we are planning a short new paper on the topic. It will build on this lengthy Cato Institute paper we authored together in 2003, “The Internet Tax Solution: Tax Competition, Not Tax Collusion.” The key principle we set forth was this: “Congress must.. take an affirmative stand against efforts by state and local governments to create a collusive multistate tax compact to tax interstate sales.” “It would be wrong,” we argued, “for members of Congress to abdicate their responsibility to safeguard the national marketplace by giving the states carte blanche to tax interstate commercial activities through a tax compact. The guiding ethic of this debate must remain tax competition, not tax collusion.” Continue reading →

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Google+ Stumbles Over Identity

by on August 1, 2011 · 18 comments

I started to see hints of it last week, but I now believe Google+ is in full stumble-mode over user identity and naming. It looks as though they’ve taken common sense—everyone has one name—and woven it into their terms of service. You can’t use a non-traditional name on Google+. But naming and identity are more complex than that.

In my book, Identity Crisis, I wrote that an identity is a collection of information other people and institutions have about a person. Others use identity information they have to distinguish you from other people (or to group you) in their minds or records. This makes identity a gating mechanism: you can allow people into a part of your life by making them privy to the relevant set of identifiers, or keep them out by denying them that information.

Commonly, people use varied identities to exclude others, for social or professional reasons, such as when they open a social network account in a false name to keep their parents or their students from accessing parts of social life that are not meant for them to see. Sometimes identity is varied for political reasons, such as when an account opens in a pseudonym for the purpose of avoiding reprisal. This is an area where Facebook’s “real names” policy has stepped in it. The further one lives from conventional life in a given society, or the more contrarily to power, the more important it is to control identity.

Identity Woman—who tells her story at the first link above—uses her non-traditional identity in a non-traditional, but completely reasonable, way. It’s just the name that identifies her better to the community she plans to reach on Google+. But Google+ thinks that the name she is supposed to use is the same one her parents gave her, is the same one on her tax return, is the same one on her college degree, is the same one on her driver’s license.

Google+ has smartly replicated the real-world concept of social circles in its “circles” function. But they haven’t replicated real-world practice in terms of naming and identity. Why? Among other reasons, because doing so would allow users to decide which “circle” Google itself is in. Google doesn’t want that. Like Facebook wants to be your super-friend, Google wants to be your super-circle.

Google+ is seeing like a state, vastly simplifying the use of identity on its platform to serve its purposes. That will be a continuing discomfort and an impediment to its fullest success. But the fullest success of social networking will probably not be on an owned platform anyway.

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Latest Industry USF Proposal

by on August 1, 2011 · 10 comments

A couple days before Congress announced a debt deal, half a dozen telecommunications companies filed a plan on July 29 with the Federal Communications Commission that attempts to resolve a much longer-running set of negotiations over big bucks.  The “America’s Broadband Connectivity” Plan seeks to replace Universal Service Fund subsidies for telephone service in rural areas with subsidies for broadband in rural areas.

Like the federal budget negotiations, the never-ending negotiations over USF get bogged down in arguments over distribution: who gets what.  Indeed, it’s almost exclusively an argument over which companies get what. But federal telecommunications policy is supposed to advance the overall public interest, not just haggle over what corporate interest gets what piece of my pie. Here is a quick take on the biggest strengths and weaknesses of the plan in terms of advancing overall consumer welfare. By “consumer welfare,” I mean not just the welfare of the folks receiving subsidized services, but also the welfare of the majority who are paying a 15 percent charge on interstate phone services to fund the USF.

BIGGEST STRENGTHS

Fixed-term commitment: Rural phone subsidies have become a perpetual entitlement with no definition of when the subsidies can end because the problem is considered solved.  The ABC plan proposes a 10-year commitment to rural broadband subsidies.  By 2022 the FCC should assess whether any further high-cost universal service program is needed. This idea remedies a significant deficiency in the current high-cost subsidy program, which doesn’t even have outcome goals or measures. (That’s why I like to sing the final verse from “And the Money Kept Rolling In” from Evita when I talk about universal service.  Free State Foundation President Randy May asked me for an encore of this at the end of the foundation’s July 13 program on universal service, available here.)

Intercarrier compensation: “Intercarrier compensation” refers to the per-minute charges communications companies pay when they hand off phone traffic to each other. The plan proposes to ramp down all intercarrier charges to a uniform rate of $0.0007/minute.  Economists who study telecommunications have pointed out for decades that high per-minute charges reduce consumer welfare by discouraging consumers from communicating as much as they otherwise would.  MIT economist Jerry Hausman, in a paper prepared for the filing, estimates that low, uniform intercarrier charges would increase consumer welfare by about  $9 billion annually.

Legacy obligations: Public utility regulation traditionally forced regulated companies to offer certain services or serve certain markets at a loss, then charge profitable customers higher prices to cover the losses. Judge Richard Posner referred to this opaque practice as “Taxation by Regulation“: the customers paying inflated prices get “taxed” to accomplish a public purpose, but they don’t know it.  Some of these obligations continue today as federal requirements applied to “Eligible Telecommunications Carriers” or state “Carrier of Last Resort” obligations.  The plan would remove these obligations for companies that are not receiving USF subsidies.

BIGGEST WEAKNESSES

Definition of broadband: The plan would continue to inflate the cost of rural broadband subsidies by defining “broadband” as 4 megabytes per second download and 768 kilobytes per second upload.  This means 3G wireless, satellite, and some wireless Internet service providers do not count as “broadband.” This decision more than doubles the number of households considered “unserved” and rules out some lower-cost technologies.  Jerry Brito and I have written extensively about both the economics and the legality of this.  Interestingly, the ABC coalition’s legal white paper arguing that the commission has legal authority to adopt the plan makes no effort to show that the commission has authority to subsidize 4 mbps broadband; it only shows the commission has authority to subsidize some form of broadband.

Alternative cost technology threshold: The plan includes an “alternative cost technology” threshold that allows substitution of satellite broadband for customers who would cost more than $256/month to serve.  Inclusion of a threshold is actually a strength. But the $256/month figure is way too high.  Satellite broadband with speeds of 1-2 mbps is now available for $60 – $110 per month.  Consumers who pay a 15 percent surcharge on their local phone bills to fund USF should not be expected to provide a subsidy of more than $200 per month.

Mobility: The plan appears to advocate subsidies for mobile broadband service in places where it is not currently available.  So now the rural entitlement expands to include not just basic broadband service in the home to stay connected, but also a mobile service that a lot of Americans don’t even buy unless their employers pay for it! I question whether mobile broadband satisfies the 1996 Telecommunications Act’s criteria for universal service subsidies, such as “essential” (not just nice) for education or public safety, or subscribed to by a “substantial majority” of households. These questions should be thoroughly examined before anyone receives subsidies for mobile broadband. At a minimum, households should be eligible for only one broadband subsidy — wireline or mobile — but not both.

 

 

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