The taxman comes for the Internet

Writing at, Seton Motley of Less Government warns that a fresh set of necks will soon feel the fangs of government sinking into their jugular veins, if the Internet is reclassified under Title II of the Federal Communications Commission’s code by executive order:

Title II is how the FCC over-regulates landline telephone lines – you know, that bastion of innovation lo these last seventy-plus years. Title II opens up the Pandora???s Box of uber-regulation of the Internet.  But wait – there???s more.

Under Title II, President Obama can also begin to tax the Internet – just as the Feds tax landlines,  just as they already tax the living daylights out of your wireless Internet -checked your cell phone bill lately? It’s 17.4% – and climbing, an $8 billion total take in 2010 – and hurtling ever upward.

The tech sector suffered quite a bit during the first Obama term; a new set of Internet taxes would be devastating, in addition to siphoning away still more income from consumers, whose wallets are the ultimate targets of all taxation.

Shifting the Internet into Title II jurisdiction is not a new idea.  A 2010 article at Engadget expanded on the difference between Title I and II regulation alluded to by Seton Motley:

In 2002, the FCC decided to classify internet access as a Title I “information service,” which meant that the agency didn’t have specific and direct authority to regulate providers — instead, it relied on its “ancillary authority,” which basically boils down to “we’re allowed to do anything reasonable to accomplish the goals Congress lays out for us.”

After the FCC told Comcast to stop filtering [file-sharing website] BitTorrent, Comcast sued, and in early April the court ruled that the FCC’s ancillary authority wasn’t strong enough to impose restrictions on ISPs – a decision that was obviously a huge blow to Net Neutrality efforts. However, the conventional wisdom was that Comcast had won itself a battle but would ultimately lose the war in spectacular fashion, since the obvious move for the FCC would have been to reclassify broadband access as a Title II “telecommunications service,” which is the same way the agency regulates wireline phones, and ISPs would have suddenly found themselves in a regulatory nightmare.

However, the FCC’s charter says it’s supposed to regulate the internet as little as possible, and a Title II approach seemed like a major overreaction with severe consequences for everyone involved.

(Emphases mine.)  The solution in 2010 was to introduce a “third way” or hybrid approach, in which broadband infrastructure would be partially covered by Title II regulations, while the data itself would remain under the less intrusive Title I.  But even two years ago, Engadget observed that “the FCC could decide it needs more or less [Title II regulation] as this process wears on, although it’s promising not to regulate pricing.”  Pinky swear!  And how many times will we fall for promises not to regulate pricing, in order to accept regulatory controls that change the value of the commodity in question… changes which inevitably lead to changes in pricing?

To put it simply, Title II regulations were designed nearly a century ago to handle the AT&T telephone monopoly.  That should convey an idea of how ham-fisted they can be, subject to the FCC’s self-imposed discretion.  Even the “third way” idea sent a chill down the spine of investors.  Among other things, they fear the explosion of litigation that would occur, as various court precedents – including Supreme Court decisions – confirming the Internet as a Title I realm were invoked in lawsuits.  If this choked off private investment in broadband infrastructure, the task of bringing high-speed Internet access to every corner of the United States would become an even greater sinkhole for public money.  The wealth lost to Americans would far exceed any revenue that could be squeezed out of Internet taxes, including the online sales taxes that both federal and state governments have been desperately seeking the authority to impose.