While much has been written about President Biden’s Build Back Better (BBB) agenda and its large investment in physical and social infrastructure, several tax provisions have received far less attention, but have the potential to have sweeping consequences. These provisions diverge sharply from the spirit of BBB, which is framed as an investment in our country’s future, and would levy heavy taxes on telecommunication companies, which would in turn discourage investment in wireless 5G infrastructure and negatively impact consumers.
The Corporate Alternative Minimum Tax provision would amend IRC Section 55(b) and place a steep 15% tax on the income of any company whose average annual adjusted income exceeds one billion dollars, taxing both past and future spectrum purchases needed for delivering wireless communication. In addition, wireless companies would no longer be able to make tax deductions from their spectrum purchases, therefore discouraging future investments.
Telecommunication companies rely on the federal government to allocate spectrum licenses, or licenses to use radio frequencies, which they frequently bid on as a form of investment. Demand for 5G technology in particular has led telecom giants to place significant bids on spectrum licenses, including $81 billion in last January’s 107 Auction. These companies view “fixed” 5G technology as the next generation of wireless communication, and a potential competitive replacement for wireless broadband.
The possibilities for this new service are endless and include everything from faster internet speeds, to lower latency, and a much greater capacity to reach remote locations. That is why introducing a new 15% tax on book income, and placing new limitations on business interest expenses, is such a bad idea.
Telecommunication companies already invest billions of dollars every year in building out digital infrastructure. For instance, T-Mobile’s 5G network already covers some 300 million Americans, or more than 90% of the country, with plans to cover even more Americans in the future.
Wireless services are among some of the most taxed services with federal, state, and local taxes. According to an Oct. report by the Tax Foundation, the typical American wireless consumer pays 25% in taxes and fees. This includes an average 13% in state and local taxes and, an additional, 12% in federal taxes. For the average family of four paying $100 per month on a “family share” plan, this translates to a tax of $300 a year for wireless service.
Some states have particularly high tax burdens because they levy per line taxes and also allow localities to enact their own per line taxes. For example, Maryland has the nation’s ninth highest combined wireless tax rate at 27.50%, because the city of Baltimore levies a 4% tax on top of state and federal taxes.
To make matters worse, Pew data has found that low-income Americans are particularly reliant on smartphones. For instance, 27% of adults living in households earning less than $30,000 a year are smartphone only users, meaning a smartphone is their only means of connecting to the internet. These families lack traditional home broadband service because of significant financial barriers to ownership such as the cost of a monthly broadband subscription, a computer, and associated equipment.
This is a problem because most Americans believe those without broadband connection are at a significant disadvantage when accessing government services or searching for jobs. There is even some evidence that a lack of access may harm school age children who need access to high speed internet for completing homework and other online assignments. In other words, the very people most in need of wireless service also tend to be those most impacted by taxes on wireless services.
BBB has the potential to exacerbate these problems by inadvertently placing a new tax on telecommunication companies, and limits on business interest expenses. As a result, companies are likely to invest less in 5G technology and pass on, at least some of these, higher costs to consumers.
A better alternative would be for lawmakers to scrap these tax provisions and instead incentivize companies to invest more in 5G technology, therefore expanding access, and making America more competitive with other countries abroad. Lawmakers can also encourage state and local governments to reform bad wireless service tax laws that tend to punish low-income Americans most in need of such services. Lastly, lawmakers can craft legislation with the consumer in mind and prioritize reaching those in hard-to-reach places.
While it remains to be seen what will become of BBB, it is fair to assume that efforts to tax telecommunication company services and investments will remain. Therefore, it is incumbent upon us to raise awareness and ensure that affordable options remain available for the American consumer.
Nate Scherer wrote this for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.