TechKnowledge No. 2

The “Gore Tax” Finds a Friend: George W. Bush

By Adam D. Thierer
April 6, 2001

You would think that if there were one federal program President Bush would want to kill, it would be the “Gore Tax,” named after his opponent in the last election. Yet not only do Bush administration officials not want to kill this program-which imposes hidden taxes on phone bills to help wire schools to the Internet-they won’t even support proposals to limit it.

At a March 7 hearing of the House Education and Workforce Committee, Education Secretary Roderick Paige announced that the administration was backing away from a plan to consolidate the off-budget “E-Rate” program, as it’s officially known, into other federal education programs. That’s too bad. The E-Rate program is a classic example of an unnecessary and unconstitutional federal program that demands immediate attention before it balloons into a perpetual federal entitlement.

E-Rate is shorthand for “education rate,” or the reduced prices for technology and telecommunications services that schools and libraries are eligible for under the program. Championed by former Vice President Al Gore, the program was part of the 1996 Telecommunications Act.

Initially, the E-Rate program was administered by a quasi-government entity, the Schools and Libraries Corporation, formed by the Federal Communications Commission in May 1997 without the consent of Congress. After questions arose regarding the constitutionality of the FCC’s creation, the agency shifted responsibility to a non-profit organization known as the Universal Service Administration Company (USAC).

While the FCC’s sleight of hand lessened constitutional concerns by seemingly shifting management to a non-profit group, in reality it was business as usual because the USAC takes its orders from the FCC. Consequently, the FCC has continued to demand that the E-Rate program be funded through a complex system of industry mandates and hidden taxes to help lower the costs of installing communications and computer technologies in classrooms and libraries. The FCC has also continued to dictate the amount of annual funding for the program, currently $2.3 billion per year.

President Bush’s original proposal to reform E-Rate was modest. The president wanted to make the program marginally more accountable by shifting administration to the Department of Education and requiring a formal appropriation for the E-Rate in the federal budget each year.

That got it half right. To the extent that schools and libraries receive public funding for their technology needs, those funds should be incorporated into a formal budget subject to open debate and a vote by elected legislators. Unfortunately, the administration was proposing that these reforms take place at the federal level instead of the state and local level, where education spending decisions should occur.

The optimal solution would be to end federal involvement altogether and allow the states to operate the E-Rate program on their own, if they so choose. While the jury is still out regarding the sensibility of increased reliance on technology in the classroom, those educational institutions desiring funds for communications and computing services should petition their state or local leaders for such funding, the same way they would for any other educational tool or technology. There is nothing unique about communications or computing technologies that justifies a federal entitlement program while other tools of learning are paid for through state and local budgets.

For example, consider textbooks. Everyone would agree that textbooks are an indispensable teaching aid. Policy makers have never suggested, however, the inclusion of a hidden tax in the cost of new novels to help lower the cost of textbooks in the classroom. Such an absurd cross-subsidy would be considered inefficient and unfair. Yet that is how the E-Rate program operates. Hidden taxes on the phone bills of average Americans cross-subsidize school wiring efforts.

It is inexplicable why the Bush administration has decided to surrender on E-Rate reform. Worse yet, the administration’s reluctance to pursue serious reform now paves the way for the E-Rate program to become a full-blown national entitlement program. And with time, the burgeoning E-Rate lobby will pressure the FCC to expand the grab bag of high-tech goodies that should be subsidized. Today it’s advanced phone service, high-speed Internet access, routers and hard wiring. As for tomorrow, who knows?

There’s a perfect candidate to run the E-Rate program in an administration that has abandoned all opposition to it. His name is Al Gore.

Adam Thierer is the Director of Telecommunications Studies at the Cato Institute in Washington, D.C. A version of this article appeared in National Review Online on April 4, 2001.