Taking From the poor and giving to the ConnectED

[Commentary] The White House is touting its plan to upgrade Internet connections to schools, and the Federal Communications Commission -- nominally, an independent regulatory agency -- has announced a $2 billion “down payment” using cash from “reserve funds.” Why, one might ask, does the Federal Communications Commission have bigger reserves than a Fortune 500 corporation? The FCC has over a billion dollars, growing fast and burning a hole in its pocket, due to recent “reforms” of the scandal-plagued high-cost portion of the Universal Service Fund (USF).

The program is supposed to extend phone service to outlying areas via the “High Cost Fund,” recently renamed the “Connect America Fund.” Rather than let the program wither, the FCC continued to collect USF taxes, diverting them to a slush fund. In 2012, $560 million poured into it; in 2013 it collected $700 million more. Stunning as it may sound, the money comes largely from low-income telephone users who pay a hefty 16.4 percent tax to make long-distance phone calls the old-fashioned (pre-Skype) way.

“E-Rate” is now called “ConnectEd.” Proponents of increased spending have not presented a shred of evidence that additional spending on the program is worth the cost, and act as if dreamy stories about “ultra broadband” and “technology in the classroom” justify the mission. Yet, while the asserted results are illusory, the costs are real, and the tax that funds it falls disproportionately on low-income consumers. It’s a “soak the poor” scheme that has no justification in law or policy.
[Hazlett is H.H. Macaulay Endowed Professor of Economics at Clemson University. Wallsten is vice president for Research and senior fellow at the Technology Policy Institute and senior fellow at the Georgetown University Center for Business and Public Policy]