With only a cursory introduction into the history of our economy, you’ll begin to detect a pattern: a new technology is developed, its industry grows rapidly with little regulatory or supervisory restraint, legislators and regulators see an opportunity for a new source of revenue and grow concerned about the lack of oversight (with or without justification), new regulations and taxes are introduced, and a once booming sector slows.
Over the couple hundred year history of our nation’s economy, this same pattern has been repeated over and over again. Today it is rearing its head in the tech sector, specifically targeting the highly prosperous and rapidly growing Internet through a number of regulatory and tax proposals that could stifle one of the last remaining sectors of the economy that is governed mostly by the free market.
Some have estimated that commerce related to Internet activities accounts for approximately 5 percent of the U.S. economy, which is expected to reach 6 percent next year and will increase at more rapid speeds in the near future. Personally, I think the $850 billion estimates are way under-representative of the real contribution of the Internet. Every business is connected to the Internet in some way and benefits from it, even if it only uses it as a marketing tool. Today, the Internet has become an invaluable and intricate part of every dollar of our economy.
The enormous potential economic impact of the Internet hasn’t gone unnoticed by those inside the Beltway. D.C. rarely takes notice of an industry without realizing that something must be done to either help “improve it” or to help assure its longevity. Whether it receives an invitation or not, D.C. doesn’t just want to join the party that the Internet industry is throwing, it wants to be both the party planner and the guest of honor.
Unfortunately, when the Federal Government tries to be the life of the party, it more often than not ends up being a wet blanket. Everyone agrees that increased regulations and internet taxes will be somewhat detrimental to the investment in and growth of the Internet economy. Legislators’ and regulators’ decisions revolve around deciding how much growth we are willing to give up for more federal oversight and income to the Treasury.
On the table right now are a number of potential impediments to the Internet sector, including the Internet Tax Freedom Act, which Congress has recently included in its 2015 appropriations bill. If the existing Act is allowed to expire, it is estimated that consumer costs would increase $15 billion. Instead of kicking the can down the road, Congress should permanently eliminate Internet taxes, which will ensure sector certainty and improve long term investment.
The Federal Communications Commission, besides a number of separate Internet fees it seems to perpetually keep in consideration, is considering reclassifying the Internet under the authority of Title II of the 1934 Telecommunications Act. Doing so gives the government more authority over the manner in which Internet Service Providers (ISPs), well, provide Internet Services, not to mention a number of new fees and taxes that would be initially imposed, as well as the unlimited opportunity to enact new ones.
A recent study by the Progressive Policy Institute, a D.C.-based think tank founded by Democrats supporting President Clinton (i.e. this isn’t a Republican issue, but an economic one), points out that national taxes and fees, combined with state and local versions, would add an additional $15 billion in costs to consumers. The ripple effect throughout the entire economy would be far more burdensome.
No one has argued that Title II reclassification would not add new fees and taxes, but many argue about the magnitude. As Americans have grown to realize that policies and regulations coming out of D.C. always do some economic harm, the argument will always be: How much is too much?
I would argue that our first, instinctual reaction should always be the non-maleficent one. In other words, “first, do no harm.”
Very few disagree with this. Even the staunchest supporter of Title II reclassification, Free Press, has been adamantly opposed to adding new fees and taxes to Internet access in the past. Here are just a few quotes from the organization most responsible for rallying the support of the Title II movement (courtesy of the National Cable & Telecommunications Association, who is obviously on the other side of Free Press on this issue, nevertheless, these are direct quotes):
“If the Commission decides to modify the current system of USF contributions, it should take special care to avoid stunting the growth in consumer adoption of broadband by placing a USF assessment on residential broadband connections.” Letter from Free Press to the FCC (October 13, 2008)
“Because broadband is a developing market, any USF assessment, no matter how small, would likely result in a net decrease in total broadband subscribership nationwide.” Dismantling Digital Deregulation: Toward a National Broadband Strategy (May 11, 2009)
Assessing the USF contribution requirement on broadband connections “would result in a net loss of nearly 2 million broadband subscribers.” Letter from Free Press to the FCC (August 10, 2010)
“Our policymakers should think carefully before creating a new broadband tax. The big concern is that because consumer demand is more sensitive to price increases on emerging services like broadband than established ones like telephone service, a broadband tax could actually undermine adoption in low-income and senior populations, the very people most likely to be disconnected.” Op-ed by S. Derek Turner, Research Director at Free Press (August 30, 2012)
Despite Free Press’ change of heart, nothing has changed today. Consumers are still sensitive to new taxes and fees, and businesses are too. Our elected leaders in D.C. will always find a way to justify the economic costs of new fees, regulations, and taxes, but rarely do they understand the impending harm that can come from their hand in the market.
Although analysts might be able to point to $30 billion in fees associated with various measures proposed on the Internet, the real economic ramifications go far beyond direct costs, affecting opportunity costs, jobs, and future long-term economic development. Those on both sides of the arguments surrounding Title II and other regulatory proposals on the Internet seem to understand the economics behind the issues, but it might take a stronger reminder from the American people before legislators really begin to listen.
Vélez-Hagan is executive director of The National Puerto Rican Chamber of Commerce, economic policy researcher at the University of Maryland-Baltimore County, and author of the upcoming book, The Common Sense behind Basic Economics (Lexington Books, 2015). @JVelezHagan