Despite What FCC Chairman Wheeler Says, His Proposal Will Increase Taxes

The common perception among Title II opponents is that reclassification of broadband as a telecommunications service would levy a massive amount of new taxes and fees on Internet users. Robert Litan and Hal Singer of the Progressive Policy Institute estimated in a December 2014 policy brief that Title II regulations will add about $11 billion in new taxes.

Free Press claims that the extension of the Internet Tax Freedom Act (ITFA) by Congress eliminates the possibility of Title II reclassification resulting in any new taxes or fees. Now that FCC Chairman Tom Wheeler released a synopsis of his proposal (he has not released full proposal to the public), it is important that we get a straight answer.

Although Chairman Wheeler did not mention anything about new taxes or fees in his Wired blog post on his proposal on February 4th, the FCC Fact Sheet on the proposal clearly states:

The Order will not impose, suggest or authorize any new taxes or fees – there will be no automatic Universal Service fees applied and the congressional moratorium on Internet taxation applies to broadband.

So it is clear? Chairman Wheeler’s proposal to reclassify broadband under Title II will not add any new taxes or fees, right? Wrong!

FCC Commissioner Ajit Pai released a February 6th statement on the 332 page proposal stating:

The plan explicitly opens the door to billions of dollars in new taxes on broadband. Indeed, states have already begun discussions on how they will spend the extra money. These new taxes will mean higher prices for consumers and more hidden fees that they have to pay.

Okay, so which statement is true?

Mr. Litan and Mr. Singer clarified the results of their paper in a blog post after Free Press claimed the findings were inaccurate due to the extension of the ITFA. Despite the passing of ITFA which generally bans Internet sales and access taxes, the Litan and Singer policy brief takes into account state-based telecom related fees for which there is no federal preemption.

Additionally, Hal Singer wrote a Forbes article after Chairman Wheeler released his blog. He said that even if the proposal does not include any new federal taxes, “state and local fees that apply to the ‘obligations of a telecommunications carrier’ could easily be extended to Internet service after reclassification.” Mr. Litan and Mr. Singer estimated in their policy brief that Title II regulations will cause annual state and local fees levied on wireline and wireless broadband subscribers to increase by $67 and $72, respectively.

Here is what seems to be going on. Chairman Wheeler is promising forbearance from the imposition of new taxes and fees, but he has no control over the actions of state and local governments which levy taxes on telecommunications providers. Additionally, the forbearance process likely will take months to years to complete and Chairman Wheeler has no authority to overrule the decisions of current or future commissioners. In other words, the proposal promises no new taxes, not because Title II regulations do not levy them, but because Chairman Wheeler hopes that future commissioners will vote to take federal taxes off the table and that state and local governments will not levy existing tax laws on Internet service providers. At least, this is the political agenda Chairman Wheeler is promoting at the moment.

When it comes to the forbearance of new taxes and fees under Title II, we should expect the worst and hope for the best. Unfortunately, the uncertainty of the forbearance process is enough to ensure that not all taxes and fees, if any, will be eliminated from Title II regulations.