Tilted Forum Project Discussion Community - Free Market vs. Sibsidized communication?

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Free Market vs. Sibsidized communication?

I recently read an interesting artical HERE regarding proposed increases in the contributions by tech companies of all types that create communication equiptment to the Universal Service Fund (USF).

The argument being presented is that everything from VoIP companies to DSL and cable companies should have to pay into this fund as the internet is a form of communication.

Different lawmakers are suggesting different approaches (Pls read the artical for a broader understanding), but intent seems to be the same accross the board. That being to increase the amount of companies that are taxed to subsidize telephone access for lower income groups and telecommunications access for library's, schools, etc.

The artical focuses in part on increasing contributions to the fund for the purpose of extending internet access to rural or sparse areas.

A disproportiant amount of the lawmakers mentioned in the artical had (R) next their name. This lead to much thought on my part.

I was always told that republicans where a party for lower / lesser taxes and less government interfearence. Isn't this interfearing with the market in many ways?

It seems to be the worst of big government. The combination of larger taxes tacked onto an entitlement program that forces others to subsidize costs for rural areas?
Would it not be better to allow the market to decide if internet service is offered in a rural area? If there is not profit to be made, there are no companies that are going to offer a service. Why force such a money losing proposition on everyone?
It seems to be a tax grab and a "gimmee" moment by more rural states for tax dollars that are not needed and increase the cost to both consumers and technology companies to do business.

Quote:

Originally Posted by arch13

Would it not be better to allow the market to decide if internet service is offered in a rural area? If there is not profit to be made, there are no companies that are going to offer a service. Why force such a money losing proposition on everyone?

except this would result in large swaths of our nation being rendered functionally illiterate within the next decade.

Quote:

Originally Posted by arch13

Would you say the same thing about electricity, phones and clean water?

The argument comes down to whether or not we want to look at the Internet as utility (like electricity and phones) or a luxury (like cable TV).

I am starting to think that it is more like the former than the latter.

Quote:

Originally Posted by Charlatan

That's how I feel. Even though the internet started out as a luxury it's quickly becoming more and more of a utility. Way back in 1998-2001 when broadband was not nearly as common I was regularly downloading homework assignments from the web and uploading assignments to class sites as well. I can only imagine how that has changed since then.

I am actually for the Universal Service Fund where phone coverage is concerned. I do believe that the every area should be served by this basic need.

I can even see taxing companies like Vonage (As an aside kudos to most VoIP companies for paying willingly though no law requires them to do so. I beleive that companies doing such things should be given more credit) that are transporting voice and injecting it into the existing voice network. In that case, the principal is the same, just not the transport method.

My objection comes from using the fund to wire up rural locales for broadband. I enjoy high speed access, so do many. But dialing in works just fine for researching your childs paper or paying your bills. The fact that the USF already has these areas wired for phone service means they have access to the internet.
We are essentially being asked to pay a tax to upgrade rural areas to high speed when market conditions suggest the area has little demand for services faster than dialup.

I do see the internet as a needed utility in our world. But access is already availible. Just not at 1.5mb.

What struck me as well was that some of the lawmakers proposing this have previously stood on principals of free-market economics and less taxes. Is this simply them pandering to their home states and their home states telephone operators who would reap highly subsidized upgrades to their network at the taxpayers expense?

I would love to make sure every university, school, and library in every state (No matter how rural) has high speed access. I just flinch slightly at the thought of paying for someones personal services when those services are already there, just slower.

I also have a great suspicion that this is a lead in to a larger tax on the tech industry that has grown in size to replace the declining tax revenue as manufacturing closes down.

In case you never noticed, areas of sparse population tend to recieve large federal subsidies, and elect Republicans.

See:
http://www.taxfoundation.org/research/show/266.html
for the raw data. Notice that the states high on the graph tend to be "red" states.

An analysis by someone else:

Quote:

Not exactly, but your question does raise an important issue. First, the facts: Of the 19 states that cast their electoral college votes for John Kerry in the 2004 election, 12 received less than a dollar from the federal government for each dollar they paid in taxes, and one (Oregon) broke even. Of the 31 states that voted for George Bush, 25 received more than a dollar for each dollar in federal taxes, and one (Florida) broke even.[1]

Eight of the top-ten state recipients of federal dollars, on a per capita basis, voted Republican.[2]

Put another way, over the last decade, blue states collectively paid $1.4 trillion more federal in taxes than they received, while red states received $800 billion more than they paid.[3] Blue states lost $8,916 per capita, while red states gained $8,499 per capita – a difference of $17,415.

Why this difference? Dean Lacy, professor of political science at Ohio State University and past fellow at the Hoover Institution, analyzed relationships between federal spending, federal tax burden, and Electoral College votes in the 2000 and 1996 elections. He concluded, “as a state’s ratio of federal spending to taxes increases, Bush’s margin of victory increases.”[4]

One common assumption disproved by Lacy’s analysis is that military spending and the concentration of military bases in the South and West are a factor. After separating military spending from non-defense spending, there was no relationship between defense spending per state and the state’s Electoral College vote. In other words, the amount a state receives in military spending does not significantly affect its voting patterns, and vice versa.

In fact, once defense spending was factored out, states that benefit the most from non-defense spending were even more likely to vote Republican. For each additional 10 cents per dollar of non-defense federal spending in a state, Bush’s margin in the 2000 election increased by 2.9 percentage points.[5]

The difference also does not seem to be attributable to the number of retirees in a state. While this does influence both voting patterns and the flow of Social Security and Medicaid dollars to a state, it does mean that a state is a net beneficiary of federal dollars. Florida, for example, receives more in federal retirement and disability payments than any other state, yet it pays as much in federal taxes as it receives in total benefits.[6]

Income is a factor. High-income blue states pay more in federal taxes, both per capita and in absolute terms, than low-income red states. This is not just because of where corporate headquarters are located. In general, blue states pay relatively more per capita in individual income tax than corporate income taxes, while the reverse is true for red states.[7]

The progressivity of many federal programs helps lower income states the most. For example, for each state dollar spent on Medicaid, Mississippi gets about $3.50 from the federal government while Minnesota gets $1.00.[8] But low-income states like Mississippi are also especially stingy with benefits to low-income people, and the federal contribution is based on state spending. Wealthier states receive more in federal health and social welfare grants than poor states, even at lower matching rates, because they spend more of their own money on programs.[9]

William Ahern of the Tax Foundation argues that since blue states earn more money and pay more federal taxes, they should be in favor of undoing the progressive tax structure. Yet election results show the exact opposite. For each $1000 per person increase in federal taxes there was a 7.6 percentage point decline in Bush’s vote margin in 2000.[10] The 1996 election results are a mirror-image of the 2000 data: states with higher federal tax burdens had a higher percentage of votes for Clinton, states that benefit most from federal spending had a lower percentage.

Who controls Congress significantly affects the direction (although apparently not the scale) of federal spending. In 1995, the last year the Democrats controlled the budget process,[11] Democratic districts received $35 million more, on average, than Republican districts. In 2000, the average Republican congressional district received $612 million more in federal money than the average Democratic district.[12]

Republican leaders were candid about the reasons behind the shift. “There is an old adage,” House Majority Leader Dick Armey (R-Texas) declared. “To the victor goes [sic] the spoils.”[13]

Part of this shift from Democratic districts to Republican districts was a byproduct of Republican budget strategies that decreased spending on social welfare programs and increased spending on farm subsidies, business and industrial loans, and crop insurance. “Rather than pork barrel projects for new GOP districts,” reported the Associated Press, “the change was driven mostly by Republican policies that moved spending from poor rural and urban areas to the more affluent suburbs and GOP-leaning farm country, the computer analysis showed.”[14]

(exerpt from Dr Dave).

Quote:

Wouldn’t it be fascinating if a liberal presidential candidate declared his (or her) intention to require Washington to return to every state an amount that is within 5 percent of what it receives from that state in taxes and fees? Such a political platform would stimulate a most instructive and welcome conversation.

Note that this isn't a matter of "poor states recieving economic help" -- red Alaska is one of the richest states, per-capita, and recieves 1.87$ from the Feds for every Federal tax dollar taken.