State, Local Taxation of DSL Internet Access
Would Harm USF, National Economy.
The imposition of state and local
telecommunications taxes on digital subscriber line (DSL)
services would slash federal Universal Service Fund (USF)
contributions by $280 million and lead to $4.3 billion in
reduced industry revenues available for investment in new union
jobs and expanded availability of broadband technologies,
according to a new study from the New Millennium Research
Council (NMRC). The U.S. Senate is poised to debate this week
the issue of state and local taxation of Internet access (see
related story below).
The NMRC study, "Taxing High-Speed Services: A
Quantification of the Effects on the DSL Industry and Universal
Service," was written by economist Stephen Pociask, a seated
NMRC scholar. Pociask is president of TeleNomic Research, a
consulting firm specializing in public policy analysis for
information technology industries.
"DSL service is price-sensitive and an increase
in taxes would produce an increase in price, leading to a
significant reduction in demand and a decrease in total industry
revenues," Pociask claims. He explained that consumers would
migrate to tax-exempt cable-modem service, or abandon high-speed
access altogether. "Since cable operators do not pay into the
Universal Service Fund, an increase in cable-modem demand would
not help state and local governments raise taxes nor would it
help fund universal service programs."
USF contributions are paid on all interstate
telecommunications services and are used to support telecom
service for low income customers, underwrite network development
in high-cost areas, and fund Internet services for schools,
libraries, and rural healthcare providers. Pociask warned:
"Because universal service programs are already under financial
strain, this substantial contribution loss would put these
social programs in serious jeopardy."
Diminished industry revenues would reduce
investment in DSL deployment, curtail union job growth, and deny
states potential employment, property, and income taxes
associated with the economic stimulus of broadband technologies.
The NMRC study estimates that the reduction in industry revenues
would lead to a one-year loss of 11,900 direct jobs, including
7,600 unionized jobs. There also would be a sizable loss of jobs
in other industries, according to Pociask.
