Text 2969, 106 rader
Skriven 2006-10-24 15:06:06 av Alan Hess
Ärende: a(nother) waste of tax dollars?
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Sure sounds like it to me.

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http://www.baltimoresun.com/news/opinion/oped/bal-op.phones24oct24,0,1903115.s
tory?coll=bal-pe-opinion

From the Baltimore Sun
Phone fund rip-off


By Thomas W. Hazlett

October 24, 2006

ARLINGTON, Va. -- Programs are given funny names in Washington. Take the
Universal Service Fund, which spends $7 billion annually to extend telephone
service to low-income households in high-cost areas. In truth, it has never
delivered "universal" phone service or significantly expanded the reach of
networks. What it does is shower subsidies on grossly inefficient rural phone
companies while imposing stiff taxes on the very folks it aims to help. And
policymakers are today casting about for new revenues to feed the beast.

Many consumers are alarmed that taxes are being raised on other network
activities to keep the subsidies flowing. As detailed in my study commissioned
by the Seniors Coalition, rural telephone companies bag as much as $13,345 per
year, per line, in federal payments.

To fund the Universal Service Fund's corporate largess, U.S. long-distance
calls are taxed. This hurts phone users, particularly those with limited
incomes, and puts a drag on the expansion of communication networks - precisely
the reverse of what is intended by "universal service."

The fund has surged to more than $7 billion annually, up from less than $4
billion in 1998; consequently, the tax rate skyrocketed from 2.1 percent in
1997 to 10.9 percent in 2006. Eighty-five percent of the increase in the fund
since 1999 consists of subsidies to phone carriers via "cost plus" accounting
that encourages inefficiency by increasing payments to companies that have
higher expenses.

Company handouts mushroomed from $1.7 billion in 1998 to $3.7 billion in 2005.
Carriers have organized around these federal payments, which reward small
systems with extremely high costs. While there are about 90 local phone
companies serving suburban and urban markets, there are nearly 900 serving
rural markets. Many receive federal payments in excess of $1,000 a year per
telephone line.

Even the most remote households can now be served by efficient alternatives to
traditional fixed-line networks. Satellite phone service, for instance, is
pretty expensive at $800 per year - but it's an absolute bargain compared with
the Universal Service Fund-subsidized option. Taxpayers could save at least $1
billion each year by simply giving away - at full retail cost - satellite or
cellular phone service to the few remaining Americans who do not have access to
wire-line systems.

While the goal of universal service is uncontroversial, Americans are ditching
old-fashioned phone networks. In 2004, the latest year for which government
data are available, just 89 percent of U.S. homes had a traditional fixed line,
down from 94 percent a few years ago. The decline was more than offset by
mobile phones. But the Universal Service Fund swims against this natural
transition by bailing out yesterday's technology with today's tax dollars.

Rural telephone companies are now so flush with subsidies that many of them pay
out more in dividends to their owners than they charge for phone service. More
than 100 rural telephone companies incur more than $500 per line in annual
administrative expenses - what a typical mobile customer pays in total charges.
These are corporate overhead costs not driven by expenses associated with
providing service in low-density markets.

"Long distance" revenues have gone the way of the eight-track tape deck,
replaced by e-mail, buckets of wireless minutes and Voice over Internet
Protocol (VoIP). So now, to finance the Universal Service Fund, tax rates are
rising for fixed and wireless phone subscribers and being newly imposed on VoIP
customers.

Advocates of rural phone subsidies fiercely resist the idea that $1,000 per
line in annual subsidies is excessive. In fact, they deny that the taxes levied
to pay for the $7 billion fund are even taxes at all. An industry consulting
paper stated that "USF structure is simply a pricing strategy, employed by
public policy makers over the years, to enable local exchange carriers to earn
a reasonable return on their investment."

What a pleasant way to think about it. Americans, it is true, might be much
happier if they would just think of the taxes withheld from their paychecks as
"simply a pricing strategy, employed by public policy makers" - and not really
taxes at all.

But if obfuscation fails to ease the pain, a more realistic solution would be
to cap the mushrooming Universal Service Fund and then reduce it year by year.
A means to this end would be to adopt "reverse auctions" to assign universal
service obligations. Here, the government specifies high-cost service areas and
then takes bids from rival firms offering to serve that area as the "provider
of last resort." The lowest-priced bid wins.

Reform would not prove popular with rural carriers that now wolf down $4
billion in annual subsidies, but it would make excellent economic sense. And
the American taxpayer would likely find it a more palatable solution than
pretending that taxes aren't taxes.

Thomas W. Hazlett is a professor of law and economics at the George Mason
University School of Law. His e-mail is thazlett@gmu.edu.

Copyright + 2006, The Baltimore Sun | Get Sun home delivery

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