New Tax Credits Incentivize Failed Broadband Schemes

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.

The Details

Municipal Broadband

• Municipal broadband networks, sometimes called government-owned networks (GONs), are networks that are owned and operated by public entities, usually local governments.
• Originally implemented as an alternative way to bridge the digital divide for areas unserved by privately owned broadband networks, the vast majority of GON projects have resulted in total failure.
• Due to the cost intensiveness of building out broadband infrastructure, and the lack of market and profit mechanisms to balance costs and benefits, GONs almost always come in way over budget with little tangible benefit for consumers.
• For example, in Senate Budget Chair Bernie Sanders’ own backyard of Burlington, Vermont, the city “tried to build its own broadband network and was unable to service the debt for the project.”

Section 13511

• Section 13511 of the reconciliation package produced by W&M provides a 30 percent tax credit for GONs.
• This provision is clearly attempting to pick winners and losers among broadband providers, incentivizing municipalities to invest in GONs rather than working to close the digital divide through more cost-effective means.
• President Biden and the House Democrats’ budget is clearly more concerned with throwing around taxpayer money and seeing what sticks than with finding the most effective way to bridge the digital divide.
• While the forthcoming Bipartisan Infrastructure Package includes $65 billion for a host of broadband-related projects, the vast majority of this money is similarly misdirected.

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.