HOTELS LIST PORNOGRAPHIC VIDEOS on their guests’ bills as “room charges.” College liquor stores itemize keg purchases as “provisions” or “supplies.” And for the last year and a half, the Federal Communications Commission has levied a phone tax and called it a “universal service charge.” It comes to $ 12.50 per household per year, and on May 27 the FCC will vote to double it.
Influential Democrats back the charge, known more formally as the e-rate, which was introduced in 1997 under the tenure of FCC chairman (and ur-Gore crony) Reed Hundt. It’s not only consistent with a century-long pattern of uncontroversial phone levies, Democrats argue — it’s a way to wire schools and libraries to the Internet that was explicitly approved by Congress under Section 254 of the 1996 Telecommunications Act. Republicans counter that it’s taxation without representation and that it’s unnecessary: 70 percent of schools were already wired before the subsidy started. But what clearly bugs them most is that the “Schools and Libraries” Internet program is a centerpiece of Al Gore’s 2000 presidential campaign. Gore’s influence at the FCC is ongoing, and current FCC chairman William Kennard has made three recent campaign-style appearances with the vice president: one on the e-rate, one (in Los Angeles) on children’s television, and one (in New York) on minority advertising. That deep degree of Gore involvement has left Republicans desperate to turn voters against the “Gore tax.”
Both sides have a point. In the name of “universal service,” implicit subsidies have been built into the phone system ever since it became a national one. Urban customers pay above-market rates to subsidize more expensive rural hookups; businesses subsidize residences; and long-distance traffic subsidizes local calls. In negotiations over the 1996 act, a group of rural senators, led by Democrat Jay Rockefeller of West Virginia and Republican Olympia Snowe of Maine, joined to protect this setup. Under the language of the bill, schools and libraries — along with rural hospitals and other needy institutions — can be subsidized for phone hookups.
That is where the controversy began. Republicans point out that the legislative language — even in its most forgiving reading — applies only to wiring, which accounts for just 4 percent of the subsidies the FCC doles out, with the rest going to high-tech hardware. (There have even been cases of schools trying to defraud the FCC by using the subsidies for various office equipment.) That led to a further complaint: cronyism. Opponents of the tax note that its biggest beneficiaries are not schools but the high-tech companies that install Internet equipment: Cisco, which controls a huge share of the “router” market, Lucent, Nortel, Compaq, 3Com. Oddly enough, Cisco and 3Com — whose lobbying operations are devoted largely to campaigning against Internet regulation — are using the FCC’s regulating authority to reap windfalls in hardware sales.
The FCC has sought to disguise the tax by pressuring the companies it regulates to describe it as a “charge.” At the same time it has tried to keep big business happy by pairing fee hikes with fee cuts. With the subsidy for schools and libraries set for a billion-dollar rise — from $ 1.25 to $ 2.25 billion a year — the commission has announced a $ 1.1 billion cut in long-distance carriers’ “access charges,” which are a vestige of the Ma Bell-era long-distance surcharges used to keep local calls cheap.
The benefits and burdens are not borne equally. Big carriers like AT&T and MCI can get the access charge back; smaller ones, including all cell-phone companies and all pager companies, don’t pay the access charge in the first place, so they have to eat the “Gore tax.” That’s why GTE sued over the charge in the 5th Circuit, on the grounds the FCC had gone beyond statutory authority. Oral arguments were heard last December and the decision is pending.
Other legal developments could doom the universal service charge. A.D.C. circuit court decision last August — Thomas v. Network Solutions — creates the basis for an unlawful-tax claim on the FCC levy. Thomas involved a National Science Foundation policy of charging fees for Internet domain names, with the revenues to be used for education. The court ruled that, since payers and beneficiaries were not the same people, the NSF’s fee was a de facto tax. Another promising legal avenue is “non-delegation” doctrine, under which the D.C. circuit overturned certain Environmental Protection Agency ozone and smog guidelines in May. The court’s reasoning — that the EPA was working on such a vague mandate that it was effectively making law as it went along — could apply to the FCC’s universal service charge.
It’s certain that many in Congress look at the FCC’s program as a usurpation. Virginia representative Thomas Bliley’s Commerce committee has been hostile to the e-rate. Even the committee’s ranking minority member John Dingell of Michigan — not generally known as an enemy of regulation — has called publicly for Kennard’s resignation. The commissioners will appear before the Senate on May 26 to answer what senators promise will be some “tough questions.” But that’s just pro forma. For now, little will be done about the e-rate, unless a court decision overturns it. For Congress to reopen the 1996 Telecommunications Act is politically unthinkable right now.
The five-person FCC, which meets the day after the Senate hearings, is split between three Clintonite Democrats (including Kennard) and one conservative Republican (economist Harold Furchtgott-Roth), with Colin Powell’s son Michael providing a liberal-Republican middle-ground vote. Powell typically votes with the Democrats, while issuing qualifying statements of “concern” that echo Furchtgott-Roth’s. So it is a virtual certainty that the e-rate program will get hiked all the way up to its $ 2.25-billion FCC-mandated ceiling.
One way that Republicans could make headway against the e-rate would be to question Al Gore’s project of wiring schools to the Internet in the first place. In the wake of school shootings for which the public has given the Internet a share of the blame, the vice president shows signs of nervousness. In early May, he tried to claim credit for an industry initiative to create “firewalls” to protect children from inappropriate Internet material. Arizona senator John McCain, meanwhile, urges legislation that would make schools install software to block pornography and violence before they can become eligible for Internet-installation subsidies. But even in the wake of Littleton, Gore has declined to back it. He doesn’t have to. Vulnerable though he may be on the Internet-in-schools issue, Republicans feel themselves to be even more vulnerable. According to a senior congressional staffer who handles a lot of telecom issues, “The whole [Republican] conference is — almost to a person — petrified of letting anyone paint them as ‘anti-education.'”
So, barring a dramatic national change of heart, Gore has guaranteed himself a win on a key issue. In so doing, he’s shown he can take a page from the master’s playbook. In 1996, President Clinton ran for reelection as both the author of welfare reform — and the only man who could keep it from being enforced. Next year Al Gore will run for president as both the man who brought the Internet into every classroom — and the only man who can protect teenagers from the snuff graphics and smut that are increasingly the Internet’s raison d’etre.
Christopher Caldwell is senior writer at THE WEEKLY STANDARD.
