July 13, 2010 10:00AM

Time to End the “Gore Tax”

When the Telecommunications Act of 1996 passed, section 254 was dubbed the “Gore Tax” by detractors of the policy and the then‐​Vice President whose project it was.

A system of cross‐​subsidy that was implicit in the old AT&T was made explicit as a tax on interstate telecom services—euphemistically referred to as a “contribution”—and expanded to reach to a small universe of sympathetic interests—more accurately, the telecommunications providers serving those interests.

The amount of the “contribution” would be set by the Federal Communications Commission. That is, the agency would set the level of taxes on telecommunications, then hand out the money it produced by taxing. (I wrote previously about the Taxpayers Defense Act (House -105th Congress, House — 106th, Senate — 106th), introduced in recognition that this is taxation without representation.)

Under the program, subsidies go in four directions: to high‐​cost telecom users, such as those in remote locations; to low‐​income telecom users; to schools and libraries; and to rural health care efforts. Surprise, surprise! The program has grown over the years, and it has been plagued by allegations of corruption and misuse.

To its credit, the House Energy and Commerce Committee has been doing some oversight, and it recently sent a letter asking the FCC to provide some data on the program. The FCC has responded, and the results are striking.

The FCC’s list of the top ten recipients and the subsidies they received in 2007, 2008, and 2009 show hundreds of millions of dollars going to large telecom firms, more than a billion each to AT&T and Verizon.

state by state list of subsidies under each of the four universal service programs also shows each state’s “contribution” and whether it was a net winner or loser. The total “dollar flow” is negative by some $187 million in 2009. That’s the money that went to administrative expenses—essentially Washington, D.C.‘s take.

Then there’s the shocking list of the largest per line subsidies. Westgate Communications in Washington state received $301,966 in 2009 to support 17 subscribers to their services—a subsidy of $17,763 per line. Adak Eagle Enterprises in Hawaii received $23,945,376 for 2,192 customers, a subsidy of $10,926 per customer. Subscription news service TechLawJournal notes that the top five per line subsidies are all in states with representation on the Senate Commerce Committee.

Folks with the biggest heart‐​to‐​brain ratio might interpret this as good news: People who otherwise might not have telecommunications services are getting it! But even a big‐​heart might recognize the brainiac/​green‐​eyeshade perspective. These subsidies do at enormous cost what might be done better and cheaper with competition and innovation. Utterly top‐​class communications can be delivered anywhere in the United States—pretty much anywhere in the world—for far less than $10,000 per customer per year.

Equally importantly, people who live in remote areas have no just claim that others should pay for their communications, just as people in areas with expensive housing have no just claim that rural folk should pay their rent.

Section 254 was a bad policy at the outset, and these data manifest that. Expensive government “universal service” programs should be eliminated so that unhampered competition in the private telecommunications market can deliver cost‐​effective telecom services everywhere they are supposed to be. That would satisfy both the hearts and the brains among us, and it would do so justly.