Double Taxation of Cable and Internet Must End

Ross Marchand

July 15, 2019

Cable companies across the country must deal with paying double taxes as local franchising authorities heap onerous fees on top of taxes already in place. The Cable Act of 1992 put in place fee caps of 5 percent of gross cable service revenue, limiting taxes and still resulting in a windfall to local governments.  But, this money wasn’t enough for greedy governments intent on squeezing increasing sums from consumers already taxed enough. Now, the Federal Communications Commission (FCC) is examining how to restrict these runaway fees and restore certainty to businesses and consumers. By allowing for a predictable price system that doesn’t punish consumers and stymie innovation, the FCC can pave the way for better television (is there any better television than Married at First Sight?) and faster internet.

Before 1992, cable services were trapped in a Wild West of taxation and difficult-to-follow rules, where the “sheriffs” (i.e. government officials) would heap hidden taxes onto visible taxes and fatten their coffers as consumers suffered. Fortunately, the Cable Act put an end to this regressive regime and put in place a sensible cap that limited these shenanigans and ensured that cable operators would more than match any costs incurred by their operations. These common-sense restrictions created a predictable environment for operators to flourish and for consumers to enjoy their content, and even local governments saw the benefit. Cable Act measures resulted in $3 billion per year in added revenue for local governments across the country.

But municipalities soon learned a variety of tricks that could be used to circumvent Cable Act restrictions and extract more money from operators at consumers’ expense. Localities began to cover “shortfalls” with other franchise fees for services that overlap with cable infrastructure, such as broadband services. This resulted in renewed double taxation. This sneaky end-around has carried additional unintended consequences, precluding millions of Americans from enjoying expanded, improved internet services. Double-taxation schemes have become downright ludicrous, with instances of local governments demanding “in-kind” gifts from operators in exchange for awarding franchises. Officials bizarrely assert that this is not a tax, even if said gifts are worth the same as a direct double tax.

According to Case for Consumers vice president Gerard Scimeca, these schemes are just hidden taxes. Scimeca argues: “Aside from being afoul of the law, these local demands could cost service providers tens of millions of additional dollars, which will either mean fewer services or higher bills for their customers. It will also choke off investment in building out and improving networks, making our technology companies less competitive just when Americans are counting on new tech the most.”

Fortunately, FCC action will likely end onerous double-taxation and allow for broadband expansion across the country. The FCC can and should use its August proceedings to clarify federal requirements, and rule that local end-arounds the Cable Act violate existing federal law.  That includes reaffirming that in-kind contribution requirements are part of the 5 percent cap while still allowing communities to choose if they want public-access channels or service to public facilities to be part of the mix.

FCC action could not come at a more critical time, as the cost of local fees continues to mount. According to a study by economists Jonathan Orszag and Allan Shampine, these fees will bilk taxpayers for $8 billion annually by 2023 absent federal action.

The federal government must put an end to this reckless double-taxation, allowing consumers to enjoy their cable and internet free from greedy bureaucrats.