Why Should Broadband Get a Tax Break?

Powerful Washington players are backing the idea of helping Americans pay for high-speed access. Good for AOL, bad for the U.S.

By Howard Gleckman

The broadband industry is stepping up to the Washington trough, looking for federal tax credits to encourage consumers to buy broadband access. This is a terrible idea -- a taxpayer subsidy for an industry that neither needs nor deserves one.

It's yet another example of a powerful special interest trying to persuade Washington to give it a tax benefit its competitors don't enjoy. Such a tax credit would make more complex an already mind-numbing tax code. And, worst of all, it would discourage investment in other, nonsubsidized technologies.

Just like farmers, oil drillers, drugmakers, and others, broadband sellers claim they're somehow special. They say Uncle Sam should give them subsidies so more Americans can get a fast Web connection, which in turn will boost sales of computer and telecom equipment. The economy, they insist, just can't get along without them. Bunk.


  Why in the world should all taxpayers subsidize those who purchase one particular telecommunications service? Why not a subsidy for dialup? Or for an old-fashioned telephone? How about cable TV? Or people who raise homing pigeons?

The powerful telecom lobby has lots of support for this one. Senate Democratic Leader Tom Daschle (D-S.D.) is on board. So is much of the Bush Administration. Washington is rapidly adopting a new mantra: It should be national policy to put broadband in every home.

Pardon my asking, but why? Broadband is not a matter of health and safety. I must have missed that part of the Declaration of Independence about our rights to life, liberty, and the latest digital Backstreet Boys cut off of the Internet via high-speed access.


  If broadband is the next big thing, as its backers keep telling us, it doesn't need federal subsidies. Once the industry provides what consumers see as good value for their money, they'll buy the service. Customers will be happy, and those who sell it will be rich. And that's how it should be.

If, by contrast, cable, wireline, and satellite companies cannot provide value for the money, broadband will go the way of 8-track tapes and Iridium satellite phones. Consumers won't miss it, and sellers will take a bath. And that's how it should be. Either way, the government should butt out.

For now, broadband is growing, though more slowly than the insanely lofty expectations that have been raised for it. Why? I think the answer isn't so much cost, but service. At this point, broadband is extremely unreliable. And the biggest problem for many home users may be that it just doesn't offer enough to justify the $50-a-month price tag.


  Of course, a "killer app" actually was out there that might have attracted millions more users. It was called Napster. Many of the companies now looking for tax breaks led the legal battle to kill off the free music system.

The tech companies behind this -- AOL Time Warner, Verizon, AT&T, Comcast, and the like -- argue that the tax break will go to consumers, not to the sellers. That's true. But it is a bogus argument. If buyers get a tax break that artificially boosts demand, sellers will merely raise prices. It happens every time.

Instead of spending all this time, money, and energy lobbying politicians for new subsidies, the broadband business would do itself and its customers a favor by improving reliability and offering content consumers really want. That will mean a lot more to the future of broadband than yet another tax boondoggle.

Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online

Edited by Douglas Harbrecht

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE