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As the old adage goes, if you tax something more, you get less of it, and if you tax something less, you get more of it.
The Big Picture
As Congress continues to work out the federal budget details for next year, there is no more important committee of jurisdiction than the House of Representatives’ Committee on Ways and Means (W&M). With jurisdiction over tax policy, all things tax-related must get the Ways and Means stamp of approval, giving them extraordinary control over what our tax system incentivizes and disincentivizes.
Included in the laundry list of new, policy-driven tax breaks and handouts to make it through Ways and Means is one relatively minor policy change that will have a huge impact on the development and expansion of broadband in the United States. The new 30 percent tax credit for government-run broadband networks will create an uneven playing field in broadband deployment, incentivizing municipal projects that have been prone to failure over time-tested private sector development.
Why It Matters
Closing the digital divide and providing all Americans with reliable, high-speed broadband has rightfully been a priority for administrations on both sides of the aisle. The COVID-19 pandemic and its resulting lockdowns demonstrated better than ever that internet access is essential in our increasingly interconnected world.
However, there have been two drastically different approaches to addressing this issue. With the leadership of Federal Communications Commission Chairman Ajit Pai, the Trump administration rightly focused on reducing red tape and incentivizing the private sector to expand in areas that had previously been underserved. The Biden administration has reversed that effective policy under the fallacious premise that the federal government can spend its way to prosperity.
If past is prologue, it is incredibly likely that the Biden administration’s attempts to close the digital divide by throwing money at the problem will be entirely ineffective in the long run. Instead of providing support and resources for long-term investment in broadband, this new tax credit will incentivize municipalities to build out their own networks at an extreme cost that is untenable absent federal tax credits.