Report Touts Positive Impact of Fiber Broadband on Local Economy

On February 7, the Fiber Broadband Association published a case study report, "Fiber Anchors Sustained Economic Development, Charlottesville, Virginia." The report examined the impact of fiber broadband network deployment on the greater Charlottesville area, focusing on three economic indicators: private sector job growth, housing value, and digital microbusiness density. According to the report: "Availability of high-speed, low-latency broadband accounted for roughly 35% of Charlottesville's private sector job growth during 2015-2019." The report also credits fiber deployment with increased housing values in the area. And it emphasized the benefits of fiber for "microbusinesses" that have 10 or fewer employees, a domain, and an active website. The findings of the report are based, at least in part, on a comparison of the economic activity of Charlottesville compared with similar-sized cities in Virginia.  

The economic benefits, including job creation, of next-generation broadband networks is also the subject of previous studies. For instance, other analysts have observed the positive economic impact from deployment of 4G and 5G wireless networks and 5G networks. 

 

Local communities hoping to timely realize the full potential of fiber networks for creating jobs and economic opportunities for their residents – similar to how Charlottesville, Virginia, appears to have benefitted – should have in place wireline infrastructure siting policies, including for access to public rights-of-way, that enable timely permit application processing, with permit fees that limited to covering review and processing costs. 

Study Finds Fixed Broadband Adoption and Speed Increases Spur Economic Growth

A study released in June 2022 titled "The Contribution of Fixed Broadband to the Economic Growth of the United States Between 2010 and 2020" found that fixed broadband adoption and higher speeds have spurred economic growth and benefitted consumers. 

As observed in the Telecom Advisory Services' study – authored by Raul Katz and Juan Jung of Telecom Advisory Services, LLC – the U.S. economy grew at an average annual rate of 3.3% between 2010 and 2020. Households with fixed broadband average download speeds of at least 25 Mbps grew from less than 1% in 2010 to over 65% in 2019. As a result, fixed average download speeds rose from about 10 Mbps in 2010 to about 174 Mbps in 2020. The study sought to isolate the contributions of those developments in broadband adoption and speeds to the growth of the U.S. gross domestic product (GDP) over ten years.

Notably, the Telecom Advisory Services study found that fixed broadband adoption drove nearly 11% of the accumulated growth in U.S. GPD, with speed improvement contributing an additional 11.5%. According to the study, "if broadband adoption and speeds had remained at 2010 levels, in 2020 the US GDP would have been $1.3 trillion lower ($19.6 trillion, rather than $20.9 trillion). This is equivalent to almost $4,000 annual dollars less for the average American." Additionally, as a result of fixed broadband infrastructure deployments and speed increases, "consumers receive[d] a surplus linked to the fulfillment of a whole new range of applications in the areas of communications, entertainment and information." The study found that "[a]ggregated consumer surplus at the national level increased to over $186 billion in 2020 (up from $81.6 billion in 2010) as a result of increased connectivity," and an additional $186.2 billon of consumer surplus was realized through fixed broadband speed increases.  

Importantly, fixed broadband deployment and fixed broadband speeds also have improved since the end of 2019. Data points showing increased access to broadband services over the last two years, including fiber services, are summarized in the Free State Foundation's July 1 comments to the FCC for its 2022 Communications Marketplace Report proceeding. The comments are available at FSF's website. 

Economists Continue to Support Free Trade Policies

Earlier this week, the Free State Foundation published a new Perspectives from FSF Scholars by Senior Fellow Ted Bolema titled “Why Economists Consistently Support Free Trade Policies.” In the paper, Ted Bolema discusses how free trade policies promote economic growth, higher wages, and increased innovation in the economy.

Today, the National Taxpayers Union sent an open letter to President Donald Trump and members of Congress urging them to reject protectionist policies, such as tariffs and withdrawing from trade agreements. This is a response to President Trump’s decision to impose costly tariffs on certain goods and to withdraw from the Trans-Pacific Partnership. The letter was signed by more than 1,100 economists throughout the United States, including three members of FSF’s Board of Academic Advisors - Michelle Connolly, Stan Liebowitz, and James Prieger.

Free State Foundation scholars have maintained the position that bilateral and multilateral free trade agreements create innovation and economic growth, and strong protections of intellectual property rights implemented in those agreements encourage creation throughout the global economy. Make sure you read Ted Bolema’s new paper!

Repealing SALT Deduction Should Improve Maryland’s Economy in the Long-Run

The House of Representatives and the Senate passed different versions of the Tax Cuts and Jobs Act. Both versions of the tax reform bill would repeal the state and local tax deduction (SALT) for income and sales taxes. Although this repeal might hurt some Maryland taxpayers in the short-run, it should be a spur to create greater fiscal responsibility in Maryland. If so, this ultimately would benefit Maryland taxpayers and help grow the state’s economy.

“SALT” is the acronym referring to the deduction for individuals who itemize certain tax payments to state and local governments on their federal tax returns. SALT is essentially a wealth transfer from residents in states with relatively low tax rates to residents in states with relatively high tax rates. Additionally, because residents who live in states with relatively high tax rates benefit disproportionately more from the SALT deduction, they have less incentive than they otherwise would to hold their public officials accountable regarding tax and spending policies.

Many Maryland residents benefit from SALT because it allows them to pay less taxes. According to a Tax Foundation study, residents in Maryland receive the 5^th highest SALT deduction as a percentage of adjusted gross income, behind residents in New York, New Jersey, Connecticut, and California. But SALT encourages Maryland policymakers at the state and local levels to spend even more than they otherwise would absent the SALT deduction because many residents will not be as adversely impacted.

In this way, over time, the SALT deduction promotes more fiscal prolificacy, less accountability regarding government spending, and diminished economic growth. So while many Maryland residents may think they are better off because of SALT, the longer-term negative effects of SALT may slow economic growth, ultimately making those same residents worse off.

As I stated in a July 2017 blog, Maryland’s fiscal health, ranking 46^th in the country in fiscal solvency in one study, remains poor. But the moral hazard of the SALT deduction only tends to exacerbate Maryland’s excessive spending problem. Regarding SALT, Jared Walczak of the Tax Foundation says:

The residents of some localities are willing to accept higher levels of taxation in exchange for greater government service provision; others prefer a smaller government which necessitates lower rates of taxation. Taxpayers may be supportive of increased levels of spending if part of the cost is borne by others; conversely, they may reduce expenditures if they believe that some of the benefit of that spending will be conferred on others. Federal subsidies thus place a thumb on the scale, distorting local decision-making.

Interestingly, the Congressional Budget Office (CBO) published a November 2013 blog titled “Eliminate the Deduction for State and Local Taxes.” The CBO said: “The deduction for state and local taxes is effectively a federal subsidy to state and local governments; that means the federal government essentially pays a share of people’s state and local taxes. Therefore, the deduction indirectly finances spending by those governments at the expense of other uses of federal revenues.” The CBO also stated:

Another argument [against SALT] is that the deduction largely benefits wealthier localities, where many taxpayers itemize, are in the upper income tax brackets, and enjoy more abundant state and local government services. Because the value of an additional dollar of itemized deductions increases with the marginal tax rate (the percentage of an additional dollar of income from labor or capital that is paid in federal taxes), the deductions are worth more to taxpayers in higher income tax brackets than they are to those in lower income brackets. 

If and when SALT is repealed, whether in whole or in part, the positive economic effects will not happen overnight. In fact, an October 2017 report published by The Heritage Foundation states that repealing SALT will only boost economic activity if it is also “accompanied by more efficient state tax-and-spending policies.” As of my January 2016 blog, Maryland had the 7^th highest state and local tax burden in the United States.

Governor Larry Hogan has made it his mission to reform Maryland’s burdensome regulatory and tax climates, and he already has succeeded to some extent. A recent CNBC study, “America’s Top States for Business 2017,” found that Maryland moved up eleven spots from 36^th to 25^th, since Governor Hogan took office.  However, more support is needed from the Maryland General Assembly for lowering tax rates and cutting spending in order to improve Maryland’s fiscal climate. If the SALT deduction is repealed, Maryland legislators will have a greater incentive to reduce excessive taxes and spending, stimulating economic growth in the long-run.

Senate Tax Bill Will Stimulate Maryland’s Economy

Earlier this month, the Tax Foundation published a study on the Senate’s version of the Tax Cuts and Jobs Act, finding that the plan would grow the economy while simplifying the tax code and reducing marginal tax rates.  Using the Tax Foundation’s Taxes and Growth macroeconomic model, the study finds that the proposed tax plan will create 925,000 new full-time equivalent jobs and will increase GDP by 3.7% over the next decade. Accounting for the increase in GDP, after-tax incomes will rise by 4.4%.

The Tax Foundation also published a state-by-state impact analysis of the Senate’s proposed plan. In Maryland, the study projected 17,322 new full-time equivalent jobs over the next decade and an average increase in after-tax income for middle-income families of $3,245. Lower marginal tax rates will complement Governor Larry Hogan’s efforts to reform Maryland’s business climate. This will further stimulate Maryland’s economy and improve its long-term fiscal health.

5G Deployment Projected to Create 3 Million Jobs and $500 Billion in GDP

Earlier this month, Accenture Strategy published a report entitled “Smart Cities: How 5G Can Help Municipalities Become Vibrant Smart Cities.” The next generation of wireless network infrastructure will employ 5G technology, which will feature the dense placement of small cells to deliver speeds 10 times faster than 4G. When 5G technology is deployed, cities will be able to enjoy smarter and more efficient use of local government services such as energy, utilities, transportation, and public safety.

5G wireless technology is anticipated to produce very large economic and social benefits in the United States. The Accenture report projects that 5G will create $275 billion in investment, 3 million jobs, and $500 billion in gross domestic product. In addition, the capabilities enabled by 5G technology will allow cities to save millions of dollars. For example, smart lighting automatically will dim public street lights when no pedestrians or vehicles are present. Public transportation will be able to reduce wait times by optimizing bus and train schedules with commuter smartphones. Vehicle-to-vehicle communications will minimize congestion and lead cars through hazardous road conditions.

When it comes to public safety, deployment of 5G networks in smart cities will save lives. High-speed video surveillance will allow first responders to assess crime scenes and dangerous situations before arriving. Real-time monitoring of gunshots will provide the police with exact locations and timelines. Sensors with 5G technology will warn local residents about possible emergencies, such as tornadoes, flooding, or security threats.

Importantly, 5G networks will impact positively cities of all sizes. The report estimates that 5G’s impact on the city of Saratog, CA, with a population of 29,900, will be 300 additional jobs and $50 million in additional economic activity. The use of 5G in the city of Beaumont, TX, with a population of 118,000, will create 1,000 new jobs and $180 million in additional economic activity. The use of 5G in the metropolitan area of Chicago, IL, with a population of 9,472,000, will create 90,000 new jobs and $14 billion in additional economic activity.

Another report published earlier this month by Deloitte, entitled “Wireless Connectivity Fuels Industry Growth and Innovation in Energy, Health, Public Safety, and Transportation,” contains similar findings on the economic and social benefits of 5G wireless technology. This report says that smart cities collectively could create $1.8 trillion in additional revenue to the U.S. economy. With regard to public safety, the Deloitte report finds that a one-minute reduction in response time translates to an 8% reduction in mortality. It also says that self-driving cars could reduce emissions by 40-90%, travel times by 40%, and delays by 20%. Whether the economic impact of 5G technology is $500 billion or $1.8 trillion, it is clear that deployment of 5G will make cities safer, healthier, and contribute significantly to the U.S. economy.

However, there are some existing regulatory barriers and practices that stand in the way of realizing these significant benefits. Some municipalities take 18 to 24 months to approve small-cell implementations. Also, because providers must deploy many densely-placed small cells for networks to operate smoothly, the practice of municipalities charging a fee for each individual cell placement will discourage deployment. Reducing these barriers, by allowing the use of public rights of way, eliminating or minimizing fees, and streamlining approval processes, will increase the rate of 5G deployment and help unlock smart cities.

5G technology is the future of mobile wireless broadband. And the future is now. Without unnecessary delay, the FCC, along with state and local governments, should take affirmative actions that encourage 5G deployment and, at the same time, eliminate, or at least reduce, restrictions and fees that hinder 5G deployment.

It's Up to President-elect Trump to Revive TPP

The Tran-Pacific Partnership (TPP), a trade agreement between the United States and 11 other Pacific Rim countries, seemingly is dead, at least for now. It will not be approved by the current Congress. Therefore, it is up to President-elect Donald Trump to revive it during his Administration.

It’s true that President-elect Trump has said that TPP is a “disaster” and he has declared that he will withdraw from the agreement on his first day in office. But other than a few bullet points on his website, the President-elect has never publicly explained why he does not like this particular trade deal, which looks to be a win for entrepreneurs, creators, consumers, and the global economy.

As I discussed in a June 2016 blog, TPP would expand global trade by eliminating roughly 18,000 tariffs that member countries have imposed on imports from the United States, lifting millions of people out of poverty around the world. By removing these trade barriers imposed by foreign countries and others imposed by the United States, TPP would allow consumers and entrepreneurs in all member countries to enjoy more economic activity and lower prices than what the status quo offers.

From an intellectual property (IP) perspective, TPP appears to require adherence to strong protections of IP rights in member countries. This would help artists and entrepreneurs around the globe to earn a return on their creative works and the labor that makes them possible. According to a September 2016 report by the Department of Commerce and the Patent and Trademark Office, in 2014, 45 million jobs (or 30% of the jobs in the U.S. economy) either directly or indirectly were generated by IP-intensive industries. In the same year, IP-intensive industries added $6.6 trillion of economic activity, which is roughly 38% of GDP.

TPP addresses all aspects of IP, including copyright, patents, trade secrets, and trademarks. The IP chapter of TPP aims to do the following:

• Improves strong and balanced protection of rights and enforcement of laws;

• Bolsters incentives for the development of, and trade related to, IP-intensive products;

• Addresses common threats, including piracy, counterfeiting, and other related infringements, as well as misappropriation (including cyber theft) of trade secrets;

• Promotes transparent, efficient, and fair regulatory systems, including for patent and trademark application and registration;

• Promotes development of and access to innovative and generic medicines;

• Facilitates legitimate digital trade, including in creative content; and

• Prevents the spread of overly-restrictive geographical indication policies, including by safeguarding the rights of prior trademark owners and rules clarifying the use of generic terms.

Establishing strong IP safeguards among countries in the Pacific Rim would diminish theft of American IP, which totals $320 billion annually. U.S leadership regarding strong IP rights protections will incentivize more investment, innovation, and economic growth at home and abroad.

A 2014 report from NDP Analytics estimates that TPP would increase U.S. exports by $26 billion, U.S. GDP by $11 billion, and American jobs by 48,000 with roughly two-thirds of these benefits coming from IP-intensive industries. This increase in U.S. exports would have direct spillover effects for the other 11 member countries, leading to an estimated $6.4 billion increase in GDP and 68,240 additional jobs. Of course, these figures do not include the increases in economic activity and job creation that will occur among member countries nor do they include the increases in U.S. imports.

Additional economic activity and development within member countries would not be the only benefit flowing from a stronger IP framework; mutual gains from trade are much higher with transactions that contain strong protections of IP rights rather than weak protections. Therefore, member countries which currently have weak IP protections according to the Chamber of Commerce’s Global IP Center International Index, such as Peru, Chile, and Mexico, will incentivize creation and innovation within their own countries. And also, other developing economies, which trade with TPP countries, will recognize the gains from trade and be encouraged to adopt similar IP rights protections.

Gains from trade are mutually beneficial but not necessarily equal. If TPP is adopted, the United States would benefit from the positive externality of robust IP rights protections in other countries and from lower trade barriers with countries in the Pacific Rim. When more countries around the world have strong IP rights protections, American creators and entrepreneurs have a greater incentive to innovate because their creations are less likely to be stolen overseas. However, developing countries, which, on the whole, would substantially upgrade their IP rights protections with the adoption of TPP, likely will enjoy an even higher marginal benefit than the U.S. because their economies have not experienced as much innovation as countries with strong IP rights protections in place. In general, and all else equal, developing countries grow faster than developed countries when there is an expansion in global trade. 

Perhaps, the President-elect views the trade agreement as problematic because he considers global trade as an “us versus them” phenomenon. In other words, he may consider global trade as a zero-sum game, when, in actuality, it is a variable-sum game. For example, even if Vietnam benefits more from TPP than the United States, this does not mean the U.S. loses. Both countries are better off, even if the marginal benefit might be greater for one country over another.

President-elect Trump should revive TPP during his administration. It is vital that this trade agreement be adopted to encourage the creation of jobs and to foster greater innovation and investment in the United States and in the Pacific Rim. Mr. Trump’s campaign primarily focused on creating jobs in the United States. TPP is a win for American workers and consumers because it would expand economic activity around the world, increasing American imports and exports.

In 2014, U.S. imports and exports from IP-intensive industries were valued at $1.4 trillion and $842 billion, respectively. Those values likely would increase if IP rights are enhanced around the world. (NDP Analytics projects that TPP will increase annual U.S. exports by up to $26 billion.)

With the adoption of TPP, President-elect Trump could help spur the economy, which is clearly a top priority. Let’s hope that Mr. Trump changes his mind about TPP.

Maryland Has Relatively Low State and Local Sales Tax Rates, But…

On July 5, 2016, the Tax Foundation released a report entitled “State and Local Sales Tax Rates, Midyear 2016.” The authors, Jared Walczak and Scott Drenkard, ranked states (and the District of Columbia) by their combined state and local tax rates of the first half of 2016.

Five states do not impose statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of those that do, Louisiana has highest combined sales tax rate at 9.98%. Maryland ranks towards the bottom at 38^th with a combined sales tax rate of 6.00%.

Maryland’s sales tax ranking should be applauded. FSF scholars have been critical of long-standing Maryland tax and regulatory policies for several years, so it’s good to be able to commend this particular element of Maryland policy. However, as the Tax Foundation’s report states, sales taxes are fairly transparent revenue collections because consumers can see their tax burden on the receipt of every purchase they make, while the real impact of income and corporate taxes can be much more complex and murky.

The Tax Foundation published a report earlier this year ranking Maryland with the 7^th highest overall state and local tax burden due to a combination of personal income tax rates, corporate tax rates, and “sin” tax rates. In other words, Maryland’s state and local sales tax rates are not the problem, although this does not mean that they could not be reduced. But in order to improve its general fiscal health and economic climate in a way that fosters growth, Maryland needs to reduce its personal income and corporate tax rates. If it did this, it would improve its ranking among the states with regard its overall tax burden – thereby incentivizing more entrepreneurial activity and economic growth within the state.

World IP Day

Today is World IP Day!

World IP Day is an opportunity for ordinary people to take a step back and consider all the economic benefits that have resulted from strong protections of intellectual property rights. It’s an opportunity to promote greater public understanding about the importance of IP rights.

Strong protections of IP rights are important for ensuring that creators, content providers, artists, innovators, and marketers can earn a return on their creative works and the labor that makes them possible. Protection of IP rights incentivizes more innovation, investment, and economic growth. 

FSF President Randolph May and Senior Fellow Seth Cooper coauthored two recent Perspectives from FSF Scholars regarding intellectual property rights.

Randolph J. May, Seth L. Cooper, “George Washington: Indispensable to Intellectual Property Rights in America,” Perspectives from FSF Scholars, Vol. 11, No. 9, (February 26, 2016).

Randolph J. May, Seth L. Cooper, “The Public Contract Basis for Intellectual Property Rights,” Perspectives from FSF Scholars, Vol. 11, No. 13, (April 19, 2016).

Also, remember to check out their book on Amazon entitled “The Constitutional Foundations of Intellectual Property: A Nature Rights Perspective.”