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Taxing Streaming is the Wrong Way to Fund Broadband Access

Improving broadband connectivity and affordability benefits consumers and the economy. Therefore, federal programs that subsidize broadband deployment and adoption should be funded through general tax revenues and direct appropriations, not discriminatory new taxes that single out innovative, popular video streaming services for consumer price hikes.

by Fred Upton

One of the most effective policies to expand broadband availability and spur the growth of internet commerce has been avoiding discriminatory taxes on internet access and online activity. The clearest example of this policy has been the Internet Tax Freedom Act (ITFA), first signed into law by Bill Clinton in 1998 and made permanent in 2016. The ITFA prohibits states and cities from imposing specific taxes on internet access and online commerce. This ban on discriminatory taxes protects consumers from hidden and unpredictable fees for using the internet. 

 

With more and more daily household activity and general commercial competition now taking place online – including for work, school, banking, shopping, healthcare, communication, and entertainment – the notion of protecting the internet from discriminatory taxes is more important than ever. National broadband connectivity and affordability programs should be supported by a national revenue base. In addition to being fairer and more efficient, using general revenues to support expanding broadband access and affordability will pay for itself through higher GDP. 

 

Unfortunately, some bad new tax ideas are making the rounds in Washington. Instead of looking for the broadest and fairest source of revenue to fund government broadband subsidy programs, some in Washington now aim to impose new taxes on households for using popular internet services such as streaming video. The effort is far enough along that a new phrase – no doubt cooked up in an expensive focus group – is being spoken by a handful of policymakers: “Those who benefit most from the internet should pay to support it.” Reasonable as that may sound, make no mistake, this clever claim is just a new way to hide the plan to have the tax collector come for you and the online services you enjoy.

 

First, everyone benefits from the internet. From educators to students, health providers to patients, influencers to followers, employers to job candidates, and bankers to investors. Congress has recently showed just how fundamentally important broadband availability and adoption is by directly appropriating more than $50 billion to build and improve broadband networks and nearly $20 billion more on affordability programs. And this is to say nothing of additional billions appropriated through the Departments of Treasury and Agriculture to support broadband network investments.

 

Second, everyone that benefits from the internet today already supports the system through a variety of investments. Consumers purchase internet subscriptions – very often both fixed and mobile – and connected devices for internet access in their homes and on the move. Consumers then spend money online by purchasing everyday goods and subscribing to internet-based applications and services. Device manufacturers build and sell computers, smartphones, wi-fi routers, and connected televisions to reach the internet. Retailers, both traditional brick and mortar and online-only, sell products directly to customers via websites. The entire so-called gig economy sells services to internet users, including ride-hailing, short-term rentals, and grocery and meal delivery. 

 

Simply put: no person or business uses or benefits from internet connectivity without making an investment.      

 

Even though the benefits and costs of internet connectivity are shared across the entire economy, some self-serving claims are still made – usually by the recipients of federal subsidies – that certain online services should be singled out for new taxation. One of these targeted services is video streaming, which some absurdly claim uniquely benefits from broadband availability and burdens broadband networks. 

 

First, online video services benefit no more from broadband connectivity than do services provided by online stockbrokers, travel booking websites, home security monitoring, or even local libraries. The fact is that no internet-based service would exist if there were no internet. And what is a “unique benefit” anyway? If benefit is based on revenue, then it should be noted that the entire U.S. video streaming sector’s collective revenue is projected to be $39.3 billion a year. That isn’t even 4 percent of the more than $1 trillion in online retail sales in 2022. Remember, by definition, every penny of that $1 trillion relied on internet connectivity to be realized.

 

Second, broadband network providers aren’t burdened by video streaming, they benefit from it! If video streaming services were a burden for broadband providers, then Verizon wouldn’t promote its partnership with Netflix, and T-Mobile wouldn’t promote its BingeOn offering. Likewise, small rural wireline broadband providers wouldn’t partner with streaming video services to bundle internet and video for subscribers if doing so didn’t increase their own revenues through new and upgraded subscriptions. So, why do internet service providers advertise how well they allow subscribers to stream 4K video and watch multiple connected TVs at once? It’s because internet service providers benefit from video streaming. 

Home Telecom (South Carolina)

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Nex-Tech (Kansas)

And third, imposing a new streaming tax – even to fund laudable goals like affordable internet access – will inevitably drive up consumer prices.  Consumers are already reeling from years of sky high-inflation – with pandemic era rates over 9% and overall costs up 6.5% in 2022 and 3.4% last year. The last thing working people need is a new tax on affordable, high quality home entertainment consumers have turned in an era of high prices.

Worse yet, such a tax would be regressive and hit the lower-income and younger consumers most likely to choose affordable streaming options the hardest. As Federal Communications Commission (FCC) Chair Jessica Rosenworcel recently observed, “under any approach that assesses edge provider services, consumers could potentially face rising costs for certain edge services, particularly those that directly bill consumers” and in particular taxing digital streaming services “could increase consumer bills”. 

 

The bottom line is that picking and choosing specific services (and consumers) to tax is bad policy. And once a bad tax is put in place, it becomes almost impossible to reverse or revise – more likely it will simply balloon over time doing more and more harm to consumers.

 

To the extent revenue is needed for important priorities including universal access to affordable internet, the answer is Tax Policy 101: broaden the revenue base and fund national priorities through general revenues and direct appropriations.

“Currently, approximately 82 percent of USF contributors pass through their contribution costs to their end-users, which are reflected in consumer bills. Thus, any reforms that increase the contribution base from services directly provided to consumers will likely be passed through and have a direct effect on consumers through charges on their monthly bills. . . .  [U]nder any approach that assesses edge provider services, consumers could potentially face rising costs for certain edge services, particularly those that directly bill consumers. For example, if streaming video and music providers pass through contributions to households, it could increase consumer bills.”

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Some suggest that appropriating sufficient funds for broadband deployment and affordability is too politically fraught to be reliable. This is hogwash. Congress has recently and successfully funded broadband efforts through direct appropriation and should have the will to do so if widespread internet connectivity remains a national priority. 

 

The worst decision to make now would be to tax the very households we’ve spent so much energy getting connected to the internet in the first place. Doing so would offend core values of both the Democratic and Republican caucuses. I urge my former colleagues to reject new streaming taxes and find a better way to fund broadband subsidies and other policy goals.

Fred Upton is a former US Representative from Michigan and co-chair of the Streaming Innovation Alliance

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