There was no Weekly Update last week since it was Thanksgiving. I do want to express my thanks to all of our members and supporters across the cou...

There was no Weekly Update last week since it was Thanksgiving. I do want to express my thanks to all of our members and supporters across the country. Without your support, the work being done at the Taxpayers Protection Alliance would not be possible.

Big Tech Taxes

No doubt that internet connectivity is essential in an increasingly digital world. That was no more evident than when the world shut down at the height of the coronavirus pandemic. The ability to be online and remain connected was not optional but vital to living during that time. Thus, it makes sense why policymakers and experts are trying to find ways to ensure internet connectivity is spread as far and as widely as possible today. Unfortunately, many of those thought leaders have proposed tax hikes on big tech companies as a way of reaching this goal. The idea centers around a proposal outlined by Federal Communications Commission (FCC) Commissioner Brendan Carr in a May 2021 op-ed piece. Carr called for major tech companies to be forced to pay fees to fund the Universal Service Fund (USF) to fund internet infrastructure projects and to promote affordable access across the country. The proposal received some traction then and is still circulating, especially as opinions surrounding tech
companies have become more polarized. The argument goes that since a select few tech companies account for a disproportionately large amount of web traffic, they should have to “pay their fair share” to keep the internet up and running. Presently, traditional telephone services pay for that through fees that are imposed on consumers’ monthly telephone bills. As with most arguments that rely on the “fair share” fallacy, that doesn’t tell the whole story. First, big tech companies are already investing in building out more internet to unserved parts of the country – and the world – precisely because of how much they rely on it. That sort of investment cannot just be hand-waved away because it’s not part of USF.

There is also no hard-and-fast way to ensure the tax on big tech companies will not get similarly passed on to consumers. Any time a tax is increased on a business, the company will have to compensate somewhere. That would likely involve price hikes in some, way, shape, or form. Not only would such a “big tech tax” damage existing investment and innovation from these companies, but companies would also undoubtedly respond by raising ad prices as well as the price of their various devices and services. All those costs inevitably reach the average consumer, contributing to the inflationary pain everyday Americans are already experiencing. It is also important to note that funneling money into the USF may be for naught. The USF is on the verge of collapse. Contribution rates are falling and there is a reason policymakers in Congress and the administration are grasping for solutions. The USF – like other government programs – is in dire need of reform that simply throwing more money at it will
not immediately solve. Taking money away from innovators in the space is one of the more counter-productive solutions available.

Considering the volatility of the tech space, making the USF reliant on skimming big tech revenue could make the program even more unstable. For example, Meta’s market cap has taken a severe hit over recent months, losing billions in value in such a short period as the company’s revenue continues to take major financial hits. It would make very little sense to tie a vehicle like the USF to companies whose prospects can shift so drastically so quickly. It is a recipe for even more uncertainty in an already unstable program. Imagine tying the fate of the USF to companies like MySpace and Yahoo just a few years ago. The consequences would have been disastrous. To make the plan viable, the government would have to actively prop up tech companies, creating another new “too big to fail” dynamic. Given the push to fund USF through big tech taxes likely stems out of a desire to rein in these tech companies, the proposal becomes even more counterintuitive. And, given how typical government bailouts
work, the American taxpayer would be on the hook for even more cost because of government carelessness. While delivering high-speed internet across the nation is an admirable goal, reactionary politics going after convenient political targets will never achieve that result. Policymakers need to take a sober-minded look at the USF and come up with reasonable ways to move forward, bearing in mind the interests of taxpayers as well, and potentially working with the companies who also have a clear stake in ensuring the longevity and proliferation of the internet to every corner of America.

Louisiana Broadband Boondoggle

Congress has appropriated hundreds of billions of dollars for broadband networks to close the digital divide. Is that a smart investment? Let’s check in on one project, LUS Fiber in Lafayette, Louisiana, to see how it’s going. Controversy arose in Lafayette after city leaders decided to raid the meager reserves of city-owned LUS Fiber to balance the city’s budget. This required the broadband division of the electric utility to make $3.2 million in in-lieu-of-tax payments over the next fiscal year. Now, LUS Fiber plans an ambitious $31 million expansion across several Louisiana parishes over the next few years, expanding fiber service to more than 20,000 potential customers. Much of the funding (about $19 million) will come from Louisiana’s GUMBO grant program, which was created using $180 million in COVID-19 relief funds for the purposes of extending broadband infrastructure to the unserved and underserved. Local columnist Geoff Daily of The Current pointed out that emptying out the
reserves makes LUS Fiber vulnerable to revenue shortfalls – which would likely mean money from the electric division could be shifted over. He noted that while LUS Fiber is receiving grants to aid in planned expansions, the matching funds required by those grants may be too much for the system to bear. “The fastest way to bankrupt a fiber network is to expand too quickly. That’s because it’s relatively expensive to connect customers, and it can take years before those connections generate enough revenue to pay back the install costs. Even with the state and federal grants, that’s still true,” Daily wrote.

Although LUS Fiber was built on the backs of taxpayers and ratepayers, leaders there refuse to open the books to the people who funded the system. Louisiana law exempts the network from open records requests because the customer data is considered proprietary. There is also no stipulation in the GUMBO grants that LUS Fiber reveal exactly where it plans to lay fiber in the six parishes it intends to expand. Fortunately, some financial information is available for LUS Fiber through other reports that did not have the numbers redacted. A NewGen Strategies & Solutions Consulting Engineers Report previously showed that the communications system collected $38.6 million in operating and miscellaneous revenues in 2018, as compared to the budgeted $39.7 million. Operating expenses were under-budget at $20.3 million, as compared to the budgeted $21.3 million. Total debt in 2018 for LUS was $138.7 million as compared to $148.7 million in 2014.

Christopher Yoo, the University of Pennsylvania professor who led the groundbreaking 2017 study that found very few of these networks will ever generate enough cash flow to pay back the money allocated to build them, examined 15 more networks in a study published in January. He found that LUS Fiber would require 62 years to pay back the loans that funded it based on adjusted nominal cash flow (ANCF) from 2017 to 2019. Yoo points out this isn’t even close to the 13 years before Lafayette’s debt maturity date. Given the longtime financial turmoil of LUS Fiber, this massive expansion would be a mistake. The ambitious plan could lead to taxpayers bailing out the Lafayette network far beyond the grant money it will already receive to build out the infrastructure.

BLOGS:

Monday: The First Amendment Online Applies To Platforms Too ([link removed])

Tuesday: USVI’s Governor Arrives in Washington for a Handout ([link removed])

Wednesday: TPA Calls on House GOP Conference to Oppose Earmarks ([link removed])

Thursday: TPA Sends Letter to Congress on Oversight of Natural Disaster Recovery Assistance ([link removed])

Friday: TPA Sends Letter to Mississippi Officials Urging Needed Reforms to Medicaid Contracts ([link removed])


MEDIA:

November 21, 2022: The Center Square ([link removed]) ran TPA’s op-ed, “With Rocket Launch Comes a Payload of Red Ink.”

November 21, 2022: TPA was quoted in an article in Communications Daily ([link removed]) titled, “Senate Faces Shortened Timeline, Outside Pressure on Lame-Duck Sohn Confirmation.”

November 21, 2022: The Daily Star ([link removed]) (Hammond, La.) ran TPA’s op-ed, “Planned LUS Fiber expansion could be bad news for Louisiana taxpayers.”

November 21, 2022: RealClear Policy quoted TPA in their story, “Biden OKs Spending $13.8B on Home Heating This Winter. ([link removed]) ”

November 21, 2022: WBFF Fox45 (Baltimore, Md.) interviewed me about pensions for Baltimore City council members.

November 21, 2022: Prescott E-News ([link removed]) ran TPA’s op-ed, “A ‘Big Tech Tax’ Won’t Save the Internet.”

November 22, 2022: RealClear Markets ran TPA’s op-ed, “The First Amendment Online Applies To Platforms Too. ([link removed]) ”

November 22, 2022: Arizona Today ran TPA’s op-ed, “With rocket launch comes a payload of red ink. ([link removed]) ”

November 22, 2022: Alabama Today ([link removed]) ran TPA’s op-ed, “With rocket launch comes a payload of red ink.”

November 22, 2022: The White Mountain Independent ([link removed]) ran TPA’s op-ed, “Stamp Designs Can’t Paper Over Postal Problems.”

November 23, 2022: Patrick Hedger joined The Kevin McCullough Show (Nationally Syndicated) to discuss earmarks.

November 23, 3033: The Georgia Virtue ([link removed]) (Brooklet, Ga.) ran TPA’s op-ed, “With Rocket Launch Comes a Payload of Red Ink.”

November 26, 2022: The Boulder Daily Camera (Boulder, Col.) ran TPA’s op-ed, “Stamp designs can’t paper over postal problems. ([link removed]) ”

November 28, 2022: WBFF Fox45 (Baltimore, Md.) interviewed me about the lame duck Congress. ([link removed])

November 28, 2022: The Delaware Valley Journal ([link removed]) ran TPA’s op-ed, “A ‘Big Tech Tax’ Won’t Save the Internet.”
November 29, 2022: Townhall.com ran TPA’s op-ed, “Congress Must Shine a Light on Biden’s TRIPS Waiver Negotiations.” ([link removed])

November 29, 2022: Inside Sources ([link removed]) ran TPA’s op-ed, “American Cancer Society Should Fight Cancer, Not Vaping.”

November 29, 2022: WBFF Fox45 (Baltimore, Md.) quoted TPA in their story, “Baltimore ethics board asks Mayor Scott to delay decision on City Council pension bill.” ([link removed])

November 30, 2022: Patrick Hedger joined ‘The Lars Larson Show’ (Nationally Syndicated) to discuss earmarks.

November 30, 2022: Dan Savickas joined ‘The Barret Brief’ (New Orleans, La.) to talk about a potential rail strike and section 230.

December 1, 2022: WBFF Fox45 ([link removed]) (Baltimore, Md.) interviewed me about the potential rail strike.

December 1, 2022: I appeared on WBOB Radio (600 AM AND 101 FM Jacksonville, Fla.) to talk about big tech regulation and the economy.

December 1, 2022: Patrick Hedger joined ‘Philadelphia’s Morning Answer’ (Patrick%20Hedger%20joined%20Philadelphia's%20Morning%20Answer) with Chris Stigall (Philadelphia, Pa.) to discuss earmarks.

December 1, 2022: The Winchester Star (Winchester, Va.) mentioned TPA in their story, “In Letter To GOP Congressional Leaders, Competitiveness Coalition Sounds the Alarm on the Left's Antitrust Agenda.”

December 1, 2022: Yahoo Finance ([link removed]) mentioned TPA in their story, “In Letter To GOP Congressional Leaders, Competitiveness Coalition Sounds the Alarm on the Left's Antitrust Agenda.”

December 1, 2022: Patrick Hedger joined 'Inside Sources with Boyd Matheson’ ([link removed]) (Salt Lake City, Utah) to discuss earmarks.

Have a great weekend!

Best,
David Williams
President
Taxpayers Protection Alliance
1101 14th Street, NW
Suite 1120
Washington, D.C. xxxxxx
www.protectingtaxpayers.org ([link removed])


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