That Study In Every Paper Claiming Title II Will Result In $15 Billion In New Taxes? Yeah, That's Total Bunk

from the damn-lies-and-statistics dept

A few weeks back, we noted how a new study by the Progressive Policy Institute was making the claim that reclassifying ISPs under Title II would result in $15 billion in new state and federal taxes. As also noted, the claim was quickly picked up by media outlets and large ISP executives as the centerpiece of a campaign to convince the press, public and regulators that Title II will result in the sky falling. The cable industry was also quick to use the study as the underpinning of a series of ads pretending they care about soaring consumer bills (adorable!).

The problem, as usual in farmed telecom think tank wonkery, was that the study’s findings were largely bunk. Consumer groups were quick to complain (pdf) that study author Hal Singer packed the study with conflations, misleading math (when calculations weren’t obscured entirely) and the inclusion of unrelated programs and issues (like 911 funding) to intentionally bloat the predicted impact. Singer also misleadingly included the unrelated temporary moratorium on Internet service taxation in his findings, even though the Internet Tax Freedom Act (ITFA) has since been made permanent, wiping $4 billion, or 27%, off of Singer’s prediction in one fell swoop.

None of this of course stopped the study and the scary $15 billion tax estimate from being used by ISPs, CEOs and loyal politicians to wage war on Title II, and the study has since been regurgitated unskeptically in thousands of news reports. Well, except for the Washington Post, which recently decided to actually fact check the study’s findings (journalism!), only to discover that even if you could accurately state the full financial impact of Title II, the report went out of its way to paint as ugly of a scenario as possible:

“It is impossible to quantify the exact impact of the potential FCC decision, since Internet regulation is a new area of policy. New taxes are prohibited as long as the Internet Tax Freedom Act is in effect, so it is inaccurate to say there would be $15 billion in new taxes. There may be state charges and fees, but there is no proof that all of the current fees on telephone services would apply again to Internet services. It will not add up to $15 billion, and likely not add up to $11 billion ? the worst-case scenario. The researchers agree it is a ?high-end? estimate, which was the purpose of the report.”

Amusingly, the Post’s Michelle Ye Hee Lee contacted politicians that have bandied around the estimate, and few were interested in changing their positions when they were informed the $15 billion total was a phantom. Also of note, the story notes that Singer did at least edit his study when the Internet tax moratorium was introduced, but buried the update:

“There are too many unknowns to alarm consumers who are not well-versed in the technical and legal details of telecommunications regulations and laws. Given the uncertainties, it would be more appropriate to give a range of potential charges. But the researchers did not calculate a low-end figure for the report. In addition, the modification from $15 billion to $11 billion is a 27 percent decrease, yet the change is buried in a footnote and not readily visible for the public.

Note that none of this is to say that Title II won’t see some form of tax increase, but most analysts (the ones not trying to scare people) appear to think it will be somewhere in the range of not that big of a deal. Even if Singer was able to successfully calculate the myriad trajectory of dozens of Internet policies and tech trends to come to a hard number, he should have at least used his crystal ball to try and factor the cost benefits neutrality rules — and a healthy Internet — would have on the consumer. Would a tax increase be offset by the savings from not being price-gouged by neutrality-violating duopoly? How much would most consumers be willing to pay in additional taxes for a healthy Internet? These are questions Singer doesn’t want to ask.

After being called out by the Post, Singer took to Twitter with a unique defense of his bloated, intentionally-inaccurate missive, only highlighting the part of the story that shows there may be some kind of tax increase:

When Mike pointed out Hal was being incredibly disingenuous, Singer actually responded by blaming the news outlets that used his inaccurate figure. He further argued that even though the Washington Post gave those “three pinocchios” to everyone citing his report, it didn’t apply to him because he’d added that little footnote. “Your analysis clearly stating that I’m completely wrong is proof that I’m right,” is a new one, and one I’ll have to remember the next time I find myself creating bogus science to help prop up duopolists.

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Comments on “That Study In Every Paper Claiming Title II Will Result In $15 Billion In New Taxes? Yeah, That's Total Bunk”

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Jake says:

Would a tax increase be offset by the savings from not being price-gouged by neutrality-violating duopoly? How much would most consumers be willing to pay in additional taxes for a healthy Internet? These are questions Singer doesn’t want to ask.

Yeah, but that would contradict the prevailing narrative that the only good government expenditures are fighting wars and jailing people, wouldn’t it?

Mason Wheeler (profile) says:

Would a tax increase be offset by the savings from not being price-gouged by neutrality-violating duopoly?

Experience paints a rather depressing piocture of the answer: the vast majority of the voting public lacks the wherewithal to perform analyses like that.

In the late 1990s in Washington State, a man by the name of Tim Eyman sponsored a ballot initiative that would cap the DOT’s car tab fees at $30/year. Peop)e who were actually paying attention immediately pointed out that depriving the DOT of all that revenue would require them to dramatically cut transit subsidies, with predictable consequences for traffic congestion. Eyman and his Libertarian backers, on the other hand, ran ads promoting “freedom of choice” and keepint your money in your own pocket rather than government coffers. The measure passed, by a landslide.

The Department of Transportation couldn’t cut back on road maintenance, so it took the lost revenue out of the only place they could: transit subsidies. this ended up taking a lot of buses off the roads. Many people, especially in rural areas, no longer had the option to ride the bus at all, and those who still did found themselves with a greatly reduced schedule. (So much for improving freedom of choice, particularly for those who did not own a car!)

Without the choice to ride the bus, tons of personal cars were forced onto the roads. Commute times exploded. Within a year, a typical 15-minute commute now took 45 minutes, due to extra congestion.

It’s a general rule of thumb that a car will take approximately an hour to burn a gallon of gas just from idling. From this starting point, it’s trivial to show that the average commuter lost more money over the course of a year from being stuck in traffic than they saved in a lump sum on their car tab fees. So much for money staying in your own pocket! (And remember, this was in the late 90s. After 9/11, when gas prices went through the roof, it just got that much worse.)

This initiative was a scenario in which literally nobody wins, unless you consider oil companies to be people. But despite all of the harm it caused (which the voters were warned about) it remains very popular and every attempt to roll back this disaster has been soundly defeated. the appeal of “screwing the tax man over” is just too strong for rational analysis to overcome.

So I’m not too optimistic about the odds of people understanding the upside here, unfortunately. The ISPs understand that just as well as Tim Eyman’s backers, and they’re counting on it.

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