FCC backpedals from Internet tax (until after election)

By Brendan Sasso
09/09/12 06:00 AM ET
The Hill

The Federal Communications Commission is rapidly backpedalling from a proposal to tax broadband Internet service after a public outcry over the issue.

Democrats and Republicans at the agency are now blaming each other for pushing the idea in the first place.

Neil Grace, a spokesman for Chairman Julius Genachowski, said the commission only made the proposal “following the urging of Republican Commissioners and members of Congress."

"The Chairman remains unconvinced that including broadband is the right approach,” he said.


Robert McDowell, the only Republican on the commission when the proposal was floated earlier this year, flatly rejected that he ever supported the idea.

"I have never suggested taxing broadband Internet access," he told The Hill.

McDowell said he is skeptical that the FCC even has the legal authority to tax Internet service.

Consumers already pay a fee on their landline and wireless phone bills to support the FCC's Universal Service Fund, which aims to provide phone service to everyone in the country, even if they live in remote areas.

Last year, the FCC overhauled a $4.5 billion portion of the Universal Service Fund and converted it into a broadband Internet subsidy, called the Connect America Fund. The new fund aims to subsidize the construction of high-speed Internet networks to the estimated 19 million Americans who currently lack access.

But the money for the new Internet subsidy is still coming from the fees on phone bills.

And in recent years, with more people sending emails and text messages instead of making long-distance phone calls, the money flowing into the program has begun to dry up. The Universal Service fee has had to grow to a larger and larger portion of phone bills to compensate.

In April, the FCC suggested a number of ideas for reforming the fund's contribution system, including adding a fee to broadband Internet service. The commission also sought comments on taxing text messages, as well as levying a flat fee on each phone line, instead of the current system, which is based on a portion of the revenue from interstate phone calls.

A number of companies, including AT&T, Sprint and Google, expressed support for a broadband tax in comments filed with the FCC.

But the potential broadband tax gained wider attention in recent weeks, and the proposal now appears to be off the table.

One FCC official said an Internet tax is "politically toxic."

McDowell and other Republicans haven't explicitly called for a broadband tax, but they have been more outspoken than Democrats that the FCC should reform the Universal Service Fund's contribution system.

Sen. Kay Bailey Hutchison (R-Texas), the top Republican on the Senate Commerce Committee, which oversees the FCC, also urged the commission to take up contribution reform when it overhauled the spending side of the fund last year.

McDowell has argued that the FCC should "broaden the base" of contributions that flow into the fund.

An FCC official argued that "broadening the base" means imposing fees on services that don't currently contribute to the system. He said that broadband is the biggest and most obvious option.

McDowell insisted that he meant the FCC should consider broadening the base to include fees on each phone line or other revenue sources—but not the Internet.

The FCC official said Chairman Genachowski was always skeptical about a broadband fee because he feared it would discourage people from adopting the technology. The official said that after reviewing comments from the public on the topic, the chairman is unpersuaded that a broadband fee would be a good policy.