Sen. Ted Cruz (R-Texas) and Senate Republicans have laid out a plan to reform the bloated Universal Service Fund (USF), a Federal Communications Commission (FCC) program designed to subsidize telecommunications services, including broadband service.
Prior to the Telecommunications Act of 1996, the USF operated as a mechanism by which interstate long-distance carriers were assessed to subsidize telephone service to low-income households and high-cost areas. That act expanded universal service to include high-speed internet services in such facilities as rural healthcare clinics and schools.
Cruz noted in a press release announcing his plan, “Protecting Americans from Hidden FCC Tax Hikes: A Blueprint for Universal Service Fund Reform,” that the fund has resulted in a tax of nearly 35 percent on consumers’ monthly phone bills.
There has been debate on how to fix the USF. Traditional telecom companies, including wireline and wireless companies and cable companies that offer voice services, have provided the funding for the USF since it was launched in 1997. There has been a push for broadband and edge providers (like Netflix and YouTube) to share more of the burden. Requiring more entities to collect a tax will not make the fund more efficient. In fact, this could exacerbate the problems with the USF.
In comments submitted in August to a congressional working group discussing how to reform the USF, the Taxpayers Protection Alliance (TPA) pointed out that there is no easy solution to the issue of USF funding. If the program is changed to an appropriations model (as some have advocated), this would likely lead to inconsistent funding of the USF program, based on the whims of whoever holds congressional offices when appropriations bills are voted on. If USF contributions are assessed on a wider range of parties, including broadband service and edge providers, this backdoor tax would be passed onto consumers.
That would lead to increased costs for broadband service during a time when critics are calling for more affordable high-speed internet.
Rather than expand the USF, Congress should look to trim its budget. Utilizing $8.5 billion taxpayer dollars annually, the programs of USF are ripe for waste, fraud and abuse.
“Caught in a dilemma of wanting to further expand USF programs, but having already maxed out the level of taxation that American consumers can reasonably tolerate, the conversation at the FCC and in Congress has focused on expanding the pool of companies and products subject to the tax,” Cruz said. “This approach is anything but fair to American taxpayers: it would hide the problem of excessive USF taxation rather than fix it and ultimately make tax burdens worse by emboldening further unaccountable spending growth. It represents ‘Bidenomics’ at its worst: reform nothing and hide unsustainable spending through inflationary taxes that Americans would never agree to pay directly.”
In his plan, Cruz laid out eight principles that he believes should guide USF reform. These include putting Congress “back in the driver’s seat,” better targeting of low-income subsidies, eliminating program duplication and putting in better controls to stop waste, fraud and abuse.
Government Accountability Office (GAO) reports in 2022 and 2023 found that there is extreme overlap in broadband funding programs. The May 2023 report noted that 15 agencies within the federal government administer 133 programs. The GAO said the fragmentation and overlap can lead “to the risk of duplicative support” and that “determining whether program overlap results in duplicative support can be challenging.”
Some of the overlap includes USF programs. For example, the Affordable Connectivity Program (ACP) and USF’s Lifeline Program both focus on helping low-income residents connect to affordable broadband services. The $42.5 billion Broadband, Equity, Access and Deployment (BEAD) Program aids deployment in costly-to-serve areas, just as the USF’s High-Cost Program does.
Cruz said reform of the USF will come with hard choices. “While expanding the tax base has been the focus of more USF legislative efforts, the more lasting, meaningful benefits will come from spending reform,” he said.
Given the vast number of broadband funding mechanisms available to help Americans connect to services, it’s past time to trim the fat on some of these programs. Congress needs to take a strong look at the USF to ensure that it isn’t expanded and that it’s been utilized effectively and with minimum taxpayer waste.
Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance
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