Cheap Net phones face the threat of a tax hangup
[FAC: This San Jose Mercury article examines the effects of VoIP calling, including its inclusion as a free bundled element, on tax bases across the land. Are the economic expansion benefits associated with free Internet Telephony great enough to offset the lower taxes that appear to be resulting? In a larger sense, since telecom pricing has always been closely related to the costs of producing services, and with the costs of producing a bit, or a telephone call, approaching zero, anyway, is this not, then, a similar concern where all tax dollars that would ordinarily be assessed on telecom services, in general? You tell me.]
mercurynews.com
REGULATORS DON'T INTEND TO HELP CONSUMERS
By Gregory Rosston and Scott Wallsten
Once relegated to low quality computer-to-computer communication, Internet voice telephone service -- dubbed Voice over Internet Protocol, or VoIP -- now appears ready for prime time. For $20 to $30 per month, companies like 8x8 Communications and Vonage offer unlimited calls throughout North America. Simply plug your high-speed line and your normal telephone into a small modem-like device, and you're set to go.
Not everyone is happy with our brave new world. Regulators from New York to California are trying to bring VoIP under their regulatory tents. But extending anachronistic telephone taxes and regulations to innovative Internet services will harm consumers by raising prices, blocking competition and creating incentives for businesses to avoid those non-market costs.
Historically, regulators' jobs were to protect consumers from potential abuses by monopoly telephone companies. More recently, regulators have also been charged with promoting competition in the industry.
So why do regulators want to hobble competition from VoIP?
Unfortunately, telephone regulation today isn't really about protecting consumers or promoting competition. It's a process of taxing consumers to provide off-budget cash for funding politicians' and regulators' preferred constituencies. Most of the $14 billion raised annually comes from excessive charges to connect long-distance calls and is used to keep telephone prices low in rural areas. VoIP, by avoiding the old switched telephone network, threatens to undermine this entire subsidy system.
Telecom taxation-by-regulation was never a good way for government to raise revenues: It costs the economy more than three times as much as the same amount of money raised through general income taxes.
Imposing taxes on VoIP not only would be costly to the economy, but could also result in less competition and little additional tax revenue because firms and consumers would have the incentive and ability to find ways around those extra taxes.
For example, if regulators impose a VoIP tax, cable companies may simply offer consumers a new ``platinum'' service level that bundles ``free'' VoIP along with a few extra TV channels for a slightly higher monthly fee. Businesses that offer only VoIP, such as industry-leading Vonage, would have more difficulty avoiding taxes and could not compete as strongly. Regulators could respond to such tactics, but this cat-and-mouse game would be unproductive and expensive.
The lack of any economic rationale for regulating VoIP, the high cost of telecom taxes compared to other methods of raising revenues, and the perverse incentives that such regulations would create all mean that consumers would be the clear losers from taxing and regulating VoIP.
Traditional phone companies should not be subject to service specific taxes, either. It's time to reassess which regulations make sense, which don't, and how we could more efficiently fund priorities society believes to be important and that the market would under-provide.
In a world without these regulations, legislators might still decide to subsidize various telephone carriers or consumers. If so, they could fund the subsidies out of general revenues at a far lower cost. Voters might decide, for example, that subsidizing telephone service for the poor is worthwhile, but subsidizing wealthy rural residents is not.
Maybe VoIP isn't the Internet's ``killer app'' and ultimately can't compete with traditional telephone service. But let consumers -- not regulators -- make that call.
GREGORY ROSSTON is the deputy director of the Stanford Institute for Economic Policy Research and served as the deputy chief economist of the Federal Communications Commission. SCOTT WALLSTEN is a resident scholar at the American Enterprise Institute. They wrote this column for the Mercury News.
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FAC
frank@fttx.org |
