If you want more of something, tax it less. And if you want less of it, tax it more.
That obvious formula explains why we offer lower capital gains taxes to encourage entrepreneurship and higher “sin” taxes to discourage smoking. The same goes for regulation.
Yet too many policy makers seem to forget this cardinal rule when it comes to broadband policy. A shocking number of self-proclaimed broadband boosters urge policy makers to heavily tax the companies investing in the infrastructure; regulate them as if they were common carrier monopolies rather than the competitive players they are; and then subsidize consumers who cannot afford broadband services whose prices have been inflated by all the taxes and regulation.
Over the next year the FCC will reexamine legacy telecom regulations. Chairman Pai and Commissioner O’Rielly promise to modernize many for the 21st century, which would be welcome. Even more impactful would be bipartisan Congressional efforts to reimagine the Telecom Act of 1996, updating the pre-broadband law to better support a 5G future.
Perhaps the greatest broadband bang for the buck can be realized by reforming business taxes. The United States presently taxes our companies at the highest rate in the industrialized world. This discourages investment in America. While many companies are able to lower their effective rates through various incentives and deductions, domestic broadband infrastructure providers can rarely avail themselves of the loopholes and provisions created for exporters, intellectual property-based web players or financial service companies. The biggest broadband providers all too often face the highest effective tax rates.
Congress and the Trump Administration have made tax reform a top priority. Properly so. But while partisans will necessarily debate which plan most effectively creates U.S. jobs, which benefits Main Street and which generates higher surpluses or deficits, broadband boosters should not lose sight of the end game. Our excessively high corporate tax rate reduces broadband investment and increases its price. If we truly want more affordable broadband available to more Americans, cut the corporate tax rate.