End U.S. Global Taxation to Boost American Tech Investment

This week, the Greenlining Institute released a study slamming tech companies for keeping a substantial portion of their assets overseas. According to the study, American tech firms held $430 billion in cash off American shores, an increase of 21 percent since last year. All told, $1.4 trillion in assets are held overseas, and the tech sector represents about 30 percent of it.

Assuming the study’s numbers are accurate, it’s completely understandable and it’s justified. The blame should not be laid at the feet of tech companies, but at the feet of the IRS. The U.S. is the only nation in the developed world that taxes income earned overseas by its own taxpayers. For example, a French tech firm would pay tax on profits earned in the U.S. to the IRS, but wouldn’t pay taxes on those same profits in France. In direct contrast, Uncle Sam taxes American companies on their global profits. If an American tech company earns income in France, they would pay French taxes and then pay the IRS the difference between the French and American tax rate.

Our system of global taxation effectively shackles any multinational American business with a marginal corporate tax rate of 35 percent – 39.2 percent if you count the average state corporate tax. This is only made worse by the fact that as of this month, the U.S. has the highest corporate income tax rate in the developed world, while everyone else collectively averages 25.5 percent.

More after the jump...

Municipal Broadband Ventures More Harm Than Help

We can all agree that further broadband deployment is key to further economic and technological advancement. Yet, many local and state governments are going about deploying broadband in the entirely wrong way—through municipal broadband ventures. These projects, financed by tax dollars and taxpayer-backed debt, permit governments to engage in regional broadband deployment, essentially building entirely new broadband networks from the ground up. In a recent study by the National Taxpayers Union (NTU), the authors found that several of these municipal broadband ventures have ended in failure, mostly due to poor management, and have saddled taxpayers with the bill.

Since 2001, the number of municipal broadband ventures across the country has exponentially increased, going from 16 government-run networks in nine states, to 108 networks in 33 states by 2011. This increase has occurred even though private companies are pouring out billions of dollars each year in their efforts to expand broadband—at no expense to taxpayers.

One particularly imprudent venture is the UTOPIA (Utah Telecommunication Open Infrastructure Agency) project. This project brings together 11 municipalities who have put forward hundreds of millions of tax dollars to build out a broadband network since its inception. When it was first built in 2005, it had a debt of $85 million. Today, UTOPIA is $201.5 million in debt. If UTOPIA was forced to be sold today, it would owe the creditors around $120 million—passing their burden of mismanagement onto taxpayers. Not only has this project failed financially, but only around 8,500 of a possible 56,000 households have signed up for services through UTOPIA. This is hardly a constructive use of taxpayer dollars.

Another failed municipal broadband venture highlighted in the study is one in Marietta, Georgia called FiberNET. This network was built out by Marietta Board of Lights and Water with the intention of providing high-speed Internet to many residents and local businesses that did not have previous access. Yet, between 1996 and 2004, FiberNET built over 400 miles of cable—for 180 customers. Never once did the venture turn a profit and it ended up being sold at a loss of $25 million—another cost to taxpayers that did not sign up for this service to begin with.

The NTU study discusses a number of other failed ventures all with the same result—mismanagement, failure, and taxpayer-backed debt. Instead of perpetuating the failures that municipal broadband ventures have produced, governments should instead work on fostering an economic environment in which private companies are better able to operate, thus allowing these entities to better service regional consumers.

Online Privacy Hearing Pits Consumers and Congress Against Regulators

Last week, the Federal Trade Commission (FTC) released its report on consumer privacy (PDF), calling for “baseline privacy legislation” along with a strong self-regulatory framework for industry. FTC Chairman Jon Leibowitz then penned an op-ed reiterating his privacy strategy: Congress sets “clear rules of the road” – a sort of best practices regulatory model – while the FTC threateningly aims its regulatory firearm at companies, nudging them into accepting the Commission’s recommendations regardless of statutory authority.

But at a House subcommittee hearing just days later, Congressional leaders rightly pushed back against the FTC. At a House Subcommittee on Commerce, Manufacturing, and Trade hearing on Thursday, Chairman Mary Bono Mack met the FTC’s recommendations with caution, saying, “I’m still not certain legislation is necessary, still skeptical of the motives of both industry and government, and still leery that advancements like “Do Not Track” and “eraser button” technology will work as intended.”

The point is simple: calls for expanding government oversight and regulation on online consumer privacy have originated largely from within government, and less so from outside the beltway. The FTC’s Leibowitz unintentionally conceded this point in the op-ed: “It is time to move the conversation about privacy…beyond Washington and out to where all serious determinations of how to safeguard basic rights and freedoms in this country begin.”

Additionally, privacy practices constructed in Washington can have enormous negative reprocussions for consumers who utilize free, ad-based services. Some companies have already taken voluntary steps to adopt a “Do Not Track” button on web browsers. But whether it arose out of consumer demand or threats by the FTC – who called for a “Do Not Track” function in their preliminary privacy report – is unclear. One thing that is clear is that top-down "baseline" legislation combined with a proactive FTC could result in a less streamlined web, where consumers see less innovative services tailored to their needs. It could also mean an end to "free" and the rise of paywalls and subscriptions.

Consumers already have plenty of options for managing and protecting their own privacy. Inserting government’s foot in the door could allow the FTC to seriously expand their regulatory reach over Internet data. A vague, baseline “best practices” law from Congress could make the situation even worse: allowing open and varying interpretation of the law by the FTC. Congress and Chairman Mack are right to be hesitant.

U.S. House Pushes Much Needed FCC Process Reform

Over the past few years the Federal Communications Commission (FCC) has hardened its deleterious track record of trading in cost-benefit analyses and objective policymaking for sheer political gain. The Commission completely ignored a lack of market failure or consumer harm in enacting Net Neutrality rules. They demanded politically motivated, unrelated, and extraneous regulatory conditions for every merger under their review - including those they eventually crushed. And their timetable for many proceedings progresses like a senior citizen behind the wheel: painfully slow with unpredictable starts and stops.

Today, the U.S. House of Representatives is taking steps to depoliticize and streamline how the FCC does business. H.R. 3309, sponsored by Rep. Greg Walden (R-Ore.), would require the FCC to do a cost-benefit analysis and show market failure or consumer harm for regulatory proceedings with an economic impact. It would also stop the FCC from making merger approvals contingent on back-room negotiated mandates and regulations. And it forces the FCC to set a timetable for each type of proceeding, establishing certainty into an otherwise uncertain regultory environment for business.

Make sure to check out the letter Digital Liberty sent to the House of Representatives today urging their support for H.R. 3309. And check out Rep. Walden's op-ed on the bill in Politico.

FTC Beats the Drum on Privacy Regulation

Earlier this year, the E.U.’s “Right to be Forgotten” took a step toward implementation, despite the enormous free speech and business costs. Then in February, the White House released a framework calling for a “Consumer Privacy Bill of Rights” based off European standards. Now, in the same vein, the Federal Trade Commission (FTC) has released its final report on consumer privacy.

Calling for Congress to enact “baseline privacy legislation,” the FTC’s regulatory appetite has hardly diminished. The Commission builds off a preliminary report released in December 2010, renewing a push for “Do Not Track” functions, while also slightly expanding the regulatory focus, covering computer operating systems, mobile devices, and information brokers.

As we’ve said before, privacy protection begins at the consumer level. There are numerous tools already available to stop unwanted tracking, block advertisements, and becoming a more informed web user. As consumers and businesses jostle with each other over what privacy looks like in the digital age, the market will find a balance between preserving this notion of privacy and providing free, innovative, ad-based services that consumers have come to love.

It comes as no surprise that the FTC and White House are calling on Congress to give them more regulatory power over the Internet. However, the chance that Congress acts anytime soon are slim at best. Last year, at least six privacy bills were introduced and were effectively dead on arrival. Monthly pushes by the E.U. and White House this year have made little difference.

If government does anything, it should put its money where its mouth is and act to protect 4th Amendment rights online by securing our information from government. Only after that can a legitimate discussion over regulating information and privacy practices between businesses and consumers take place.

Antitrust Hearing Shows Misplaced Concerns over Verizon-Spectrum Co. Deal

It can’t be stressed enough that more spectrum is needed for mobile broadband. Mobile data traffic is doubling annually, with wireless devices devouring more and more data. It took nearly two years for Congress to approve new spectrum auctions, which will take at least as much longer to realize. But this has not phased lawmakers and so-called “consumer advocates” who are demonizing Verizon Wireless and cable companies for a deal that will deploy currently unused spectrum for more robust 4G service.

At a hearing of the Senate Judiciary Subcommittee on Antitrust yesterday, Subcommittee Chairman Herb Kohl (D-Wis.) questioned “whether these deals will bring beneficial new choices to consumers, or amount to previously fierce rivals standing down from competition.” Columbia professor Tim Wu painted the sale as “creeping duopoly” and argued government has a role in “deciding what competition is.” (Yikes.) Free Press’s Joel Kersey argued that it would diminish competition, leaving consumers with “fewer choices, higher prices, and unfair terms and conditions.”

As opposed to what? No new spectrum coming to market? Government mandating the sale only to select providers who can’t realize such efficiency gains? There are a few takeaways from the testimonies of Verizon-Spectrum Co. opponents.

First, hypothetical alternatives are irrelevant. Bemoaning the lack of other buyers of the spectrum simply doesn’t translate into an anti-trust violation. As Charles Rule, who testified neither for nor against the merger, pointed out: “So far as I can tell from the opponents’ filings there is no concrete alternative transaction, much less one that would have generated more output.”

Second, the increased output from the sale does bring net benefits to consumers. The spectrum has been unused since the 2006 AWS auction, to the obvious detriment of consumers in densely populated areas already facing a spectrum crunch. There are also substantial efficiency gains that can be made with the spectrum covering over 80 percent of the population (259 million POPs). Expanding coverage by utilizing additional spectrum is less costly than cell splitting (building more cell towers with existing spectrum). The FCC's metric for approving the deal is whether it is in the "public interest." It will take a quite a bit of creativity for opponents - who carry the burden of proof - to explain why it is not.

Third, competition is an activity, not a myopic metric set by the number of market actors or their market share, a point hard stressed by Friedrich Hayek. The deal would not eliminate a single competitor from the market, instead allowing competitors to enter into agreement to put the spectrum to use.

The deal brings further convergence to the industry, with cable companies engaging in the wireless industry in ways they previously intended, but could not afford to do. Comcast, Time Warner Cable, and Bright House Networks – who together make up Spectrum Co. – will have the ability to purchase wholesale access to Verizon’s network under their own names. Their agreement does not preclude them from competing on prices or devices with Verizon Wireless. It also doesn’t mean Verizon FiOS will stop trying to take customers from Comcast’s XFINITY service.

Finally, the only institution setting up a false choice between Verizon getting spectrum or a small provider getting spectrum is the government. As Subcommittee Ranking Member Mike Lee (R-Utah) correctly pointed out, government holds over 60 percent of the nation’s airwaves ideal for mobile broadband, while wireless companies hold less than 10 percent.

Digital Liberty has long called for government to liberate unused and inefficiently used spectrum for consumers, while “consumer advocates” have called for government to regulate wireless companies or ban them from acquiring new spectrum altogether.

By increasing the supply of “beach front” wireless property, prices will drop, service will improve, and the misplaced concerns of duopolistic competition will fade. But until then, the consumer benefits that will come from the Verizon-Spectrum Co. deal are even more pronounced and necessary.

Why Does Obama Want to Kill LightSquared?

Executive director of Digital Liberty, Kelly William Cobb, and Americans for Tax Reform president Grover Norquist had an op-ed on FoxNews.com last week about the Obama administration's attempt to kill the new wireless startup company LightSquared. You can read the entire op-ed or excerpts from this case of regulatory capture below:

When Congress acted last month to free much-needed spectrum for mobile broadband, they did so to keep consumer phone bills low and improve broadband service. In the very same week, however, the Federal Communications Commission (FCC) took steps to shut the doors of a brand new start-up wireless company whose existence would provide similar benefits.

LightSquared was granted permission under the Bush administration to launch an innovative new wireless network combining satellites and cell towers. With initial approval, the company began its $14 billion build-out of the network years ago. Then, after billions of dollars already spent, compliance with numerous FCC conditions and regulations, and years of planning, the Obama administration's FCC announced it plans to vacate the decision it made seven years ago, effectively shutting down all of LightSquared’s operations before the network could even be launched.

This debacle is the direct result of lobbying by the GPS industry and various government agencies, which complained to a cowering FCC that the new wireless network would interfere with their devices. There is natural interference between wireless frequencies, a gray area where one person’s property ends and another’s begins. However, in this instance the GPS devices are the ones causing interference by looking directly into LightSquared’s signal. ...

Critics of LightSquared claim this is a case of politically motivated crony capitalism; that the White House pulled strings to help the company out. But this is the opposite of what is happening. The White House is trying to kill LightSquared like they did the Keystone Pipeline. They’re not artificially propping it up like Solyndra.

This is a case of anti-free market regulatory capture, where GPS companies and the federal agencies they do business with coordinated to stop LightSquared, as e-mails between Defense Department officials recently revealed. The GPS industry even teamed up with bureaucrats in the Pentagon and other departments to leak a preliminary report on interference issues solely to undermine LightSquared.

For the full op-ed, click here.

U.N. Seeks to Centralize Power over the Web, Threaten Internet Freedom

This week, talks for updating the treaty on Internet governance will begin in Geneva. This treaty could result in the granting of numerous new powers over the Internet to the United Nations. The push to finalize the treaty by year’s end comes from a number of countries, including Russia, China, and many Arab states. Their aim to give the U.N.’s International Telecommunication Union (ITU) more power is based on a desire to impose international controls and regulations onto the Net, threatening technological innovation, free speech, and the free flow of information.

A number of the proposals for these new powers have already been revealed. Perhaps most concerning for free speech and the open flow of information are a set of proposals that would allow a country to throttle, reroute, inspect, and even restrict Internet traffic at their border. Unsurprisingly, this is being proposed by a group of nations that recently flipped their “Internet kill switches” in response to civilian uprising. Similar proposals would place issues of cybersecurity and data privacy under international purview. Another would allow the ITU to regulate international mobile roaming prices and practices.

FCC Commissioner Robert McDowell stated in a recent Wall Street Journal op-ed that “A balkanized Internet would be devastating to global free trade and national sovereignty. It would impair Internet growth most severely in the developing world but also globally as technologists are forced to seek bureaucratic permission to innovate and invest.” He notes that it is the multi-stakeholder approach to governance that the Internet employs that has made it such a success. As countries such as India and Brazil move to secure greater political freedom in their own countries, calls for international governance over the Internet will turn them in the opposite direction by discouraging free speech and technological modernization.

Centralization of the Internet goes against its very nature. The Internet has grown in a relatively free market, away from the heavy hand of the government. Much of this is due to the current governance structure, housed in independent non-profit organizations, like the International Corporation for Assigned Names and Numbers (ICANN) and the Internet Engineering Task Force, which are largely disconnected from nations around the globe. The new proposals being drawn up for ITU’s treaty will fractionalize the Internet, diminishing free speech, lessening efficiency, deterring technological innovation, and potentially raise prices. The Internet has become a booming success by remaining borderless and independent. It is imperative that these proposals are stopped, ensuring that the free market remains unimpeded by new international regulations.