The FCC announced on March 12 that the proposed universal contribution factor for the second quarter of 2013 will be 15.5%. This is a welcome decrease. But seen against the backdrop of the last several years, this de facto tax rate is still too high.
The 15.5% USF surcharge is effectively a tax on consumers of voice services. The USF surcharge is applied to the interstate long distance portion of their bills. The collected surcharges then go to fund USF in all its different programs.
Sometimes USF surcharge rate increases are defended on the grounds that total interstate long distance minutes have decreased and therefore made rate hikes necessary. That defense might carry more weight if sustaining the size of USF or some of its programs were the imperative. But USF is too big. As USAC's Annual Report for 2011 shows, in that year alone the High-Cost fund disbursed $4.03 billion, its low income program disbursed $1.75B, and its schools and libraries program disbursed $2.23B. Combined USF programs thus reallocate some $8 billion annually. And consumers are ultimately left holding the bag by funding it through surcharges.
Prof. Daniel Lyons, a member of FSF's Board of Academic Advisors, presented his ideas on USF reform at FSF's January seminar celebrating the release of Communications Law and Policy in the Digital Age: The Next Five Years.