Broadband Tax Relief Will Contribute Substantially to Efforts to Create Jobs

Details of President-elect Obama’s stimulus package are not known, but its general focus on creating jobs is coming increasingly clear. He recently characterized the package in part as: “…a two-year, nationwide effort to jump-start job creation in America.” It has been reported that the president-elect has directed his economic team “to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011.”

This focus on creating new jobs raises questions, sure to be debated in the next few months, about what kind of government actions will have the greatest leverage in labor markets. Put differently the new Administration and Congress should figure out what potential elements in a stimulus package have at the margin the highest ratio of expected employment benefits to projected government costs? That suggests analyzing how many, and what kind of, jobs will be created, by “… rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies.” To be sure, each of these programs have (de)merits unrelated to employment policies, but given the jobs focus of the stimulus package, they should be debated in those terms as well as in the context of their ability to create jobs – good, high paying jobs.

Labor economists are well aware that different sectors of the economy have different ratios of employment to output (some sectors are more labor intensive than others); they have different ratios of new investment to jobs created (a dollar of new investment creates more jobs in some sectors or companies than in others); and, they have different job multipliers relating them to other sectors (investment and job creation in some sectors lead to more or less job creation in other sectors.

We have not analyzed “Job Leverage” for all elements of potential stimulus packages, but we do know that stimulating investment in broadband networks will yield substantial dividends in the form of new, high paying jobs, directly in the network sector and indirectly among firms in the Internet Value chain and in the rest of the economy.

Studies done by Corning indicate that almost 40% of capital expenditures on fiber-based, broadband communications networks go to and for labor. And, these are good jobs paying well above (42% higher than) the average for manufacturing jobs. Thus, any investment stimulated by, say, broadband network tax relief or new spending, will accrue in substantial measure to labor. The IT sector of which telecom networks are the foundation from which most value is derived, has accounted for nearly half of all new jobs created in recent months. But, the story does not end there. Broadband network investment creates jobs not only for the investing network provider and for the broader IT sector (Google, Microsoft, Intel, Cisco, eBay, Yahoo, and countless applications providers), but also in other parts of the New Economy which rely on broadband connections to create value for consumers, business and government. Our recent review of the literature describing “externalities” associated with broadband investment turned up numerous estimates of growth, productivity, jobs and income economy wide – health care, education, finance, government, manufacturing, retail, etc. – stimulated by growth of broadband networks.

Services provided by networks that offer broadband services are anachronistically taxed, mainly by state and local governments, at roughly twice the rate imposed on average on other services. The new Administration and Congress should revisit and take steps to revise this damper on jobs. A good place to start would be to reduce government levies on broadband networks at the federal level and to take steps to create a national framework for moderating proposed broadband tax increases within the states.

Written by Dr. Larry F. Darby, former chief at the FCC’s Common Carrier Bureau and Senior Fellow for the American Consumer Institute, Center for Citizen Research

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One thought on “Broadband Tax Relief Will Contribute Substantially to Efforts to Create Jobs

  1. There is a real simple solution here. Roll back all domestic corporate taxes to 10 %. Remove all other deductions, waivers, etc..
    Note I said domestic corporations. Corporations with international divisions with international incomes should be subject to 15% no exceptions.

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