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Should we tax content providers to fund broadband build-out?

03 Feb, 2013

How do we address surging bandwidth usage and bridge the digital divide in a country where tens of millions of families don't have any high-speed access to the Internet at home - and everyone sees high prices often without the speeds for the most cutting edge uses of the Internet? Just this week, The Wall Street Journal highlighted how many low-income teens, a third of whom have no broadband at home, turn to places like McDonalds with free Wi-Fi to get their homework done. New money to bridge that gap is an obvious need cited by many political leaders, but the money needs to come from somewhere.

One question is whether content providers on the Internet like Netflix, Google and Facebook, who profit tremendously from the existence of a fast Internet, should be taxed to support the physical infrastructure supporting broadband?

In Europe, at least, political leaders are increasingly arguing that the answer should be yes.  A report commissioned by French President Francois Hollande recently argued for an "Internet tax" on the financial value of the personal data collected by companies in providing online services. Advertising-supported firms make tremendous profits collecting user data and de facto reselling it through targeted ads, so returning some of that revenue to the users in each country through taxation would help sustain the physical networks that make those businesses possible. Similarly, the European Telecommunications Network Operators Association (ETNO) proposed last year revising international treaties on Internet governance to require high-volume content providers to pay a larger share of the infrastructure costs necessary to transmit their traffic to local customers.

A few voices in the U.S. have made similar proposals. The National Telecommunications Cooperative Association has argued in the past that content providers like Google should be taxed to help support the Universal Service Fund and more generally help local Internet providers support the use such Internet giants make of local infrastructure. "Search engines run bots that run through the Internet to take pictures of every Web page," noted Dan Mitchell, vice president of legal and industry affairs for the NTCA, a few years ago. Netflix alone is estimated to use almost 10 percent of bandwidth at many internet service providers.

The fact that many of the largest online content providers are also engaged in some of the most notorious global tax avoidance schemes is helping drive the debate on having those companies pay their fair share of an infrastructure from which they benefit so dramatically. French political leaders have been explicit that they are proposing these new taxes to make up for the fact that these companies generate large revenues in France while paying relatively little in local taxes. A number of newspaper exposes in the U.S. have highlighted how Google and Facebook engage in massive tax evasion in the U.S. by shifting global profits and intellectual property assets to low-tax countries like Ireland, then claiming minimal taxable profits in the United States and many other countries. U.S. companies are sitting on $1.4 trillion in earnings from foreign subsidiaries from which they've paid no federal income tax. The trick of transferring key intellectual property ownership to foreign tax havens is a common part of the game by corporations to avoid paying taxes. These overseas tax games cost the U.S. government over $100 billion in revenue each year, according to this report by U.S. PIRG.

With political leaders talking about general tax reform in D.C., it's also time to have a serious evaluation of how online content providers can help pay for the next generation of high-speed Internet and finally close the digital divide. Light taxation of online companies had a certain logic at the birth of the Internet age, but now those companies boast some of the fastest growing revenues and profits in our economy. Having benefitted so significantly from past public investments, reasonable tax reform should have them begin paying their fair share. And if that money is earmarked for expanding the number of high-speed online users, they would actually benefit in the long-run from a far larger customer base for their products.

The Web-Deprived Study at McDonald's (WS Journal, Jan. 28, 2013)

France Considering an 'Internet Tax' on Personal Data
(Mashabale, Jan. 22, 2013)

U.N. could tax U.S.-based Web sites, leaked docs show (Jun. 7, 2012)

Rural telcos seek bigger role for Universal Service in National Broadband Plan
(Connected Planet, Jun. 12, 2009)

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes (Oct. 21, 2010)

Tax Shell Game: How Much Did Offshore Tax Havens Cost You In 2010? (US Pirg, Apr. 18, 2011)


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