As Senate Democrats look to resurrect President Joe Biden’s Build Back Better legislation, they should quickly squash the idea of new taxes on internet service providers that would be counterproductive to closing the digital divide.
Biden said in his State of the Union address that he wants to “provide affordable high-speed internet for every American—urban, suburban, rural, and tribal communities.” Increasing costs on ISPs would only ensure that less money would be available to achieve the president’s goal.
BBB started as a $1.7 trillion spending plan that was rejected by all Senate Republicans and needed the support of all Democrats to pass the chamber. But moderate Sen. Joe Manchin, D-West Virginia, rejected the legislation last year, leading to progressives scrambling to reconfigure Biden’s signature bill.
Funding proposals being considered in a new BBB bill include the book income minimum tax, as well as a limit on interest deductions.
The limit on interest deductions would apply to a number of capital-intensive industries, including internet providers. Permitting telecoms to deduct interest payments to lower their tax burdens increases the amount of money available for broadband investment, which is capital intensive.
For example, it is estimated that nearly $80 billion was invested by the private sector for broadband deployment in 2020, according to U.S. Telecom, The Broadband Association. In fact, more than $1 trillion in private sector funding has been spent since 1995. Limiting these deductions would also lower the level of investment in broadband infrastructure. That would be another loss for the concept of broadband for every American.
Slowing broadband deployment and distorting the value of future spectrum licenses
The book income tax would place a retroactive tax on past spectrum purchases and increase taxes on future spectrum purchases. As Michael Santorelli, director of the Advanced Communications Law & Policy Institute at New York Law School, wrote in Forbes, “Spectrum is the lifeblood of wireless networks, so any increase in taxes associated with spectrum purchases would likely slow 5G deployment.”
The Tax Foundation said such a tax would likely “distort the prices companies are willing to pay for future spectrum licenses.”
Meredith Attwell Baker, president and CEO of CTIA, which represents the U.S. wireless industry, calls the spectrum tax the “5G tax trap.”
She noted in a recent op-ed that wireless providers paid the government more than $100 billion in new spectrum licenses in just the past year. The results have been that 5G networks are being created about twice as fast as 4G networks were and already cover about 90 percent of the country.
Baker said the new proposal would no longer permit wireless companies from writing off the costs associated with acquiring spectrum while still allowing other companies to write off other costs of investments made while building out broadband infrastructure.
“That puts wireless providers at a significant disadvantage at a time when mobile broadband is proving vital to getting and keeping Americans connected,” she wrote.
The U.S. leads the world in 5G development, with speeds that rival cable and fiber. But China continues to nip at the heels of the United States. Increasing taxes on providers while China subsidizes 5G infrastructure could easily flip the script.
Fortunately, the BBB legislation doesn’t seem to be moving forward, with Sen. Mark Warner, D-Virginia, telling Vox last week that he didn’t “have the foggiest idea” of how to advance the bill.
But if BBB arises again, Democrats should reconsider tax proposals that would only harm the effort to close the digital divide.
Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance. This piece is exclusive to Broadband Breakfast.
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