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This week TIME magazine published a very helpful feature on the Federal Trade Commission's Google inquisition. It is worth a read for anyone interested in Internet freedom. TIME's Sam Gustin provides some great background info on the case, and makes some key points on why he says the government should be "careful" about taking action against Google.
He points out Google's strong, and earned, 60 percent-plus market share is not in an of itself a valid basis for anti-trust action. This is why the well-funded Google opponents at 'Fair Search' showed so much love for Europe's much more lenient, and pro-government, "dominance" standards at their panel event.
The article also addresses the key issue of 'consumer harm' and monopolies, "Monopoly power is defined as the “power to control price or exclude competition.” But Google’s search engine is free for users, and it’s not doing anything to prevent users from switching to a rival search engine — other than providing a superior service."
As NTU discovered with our IBOPE/Zogby poll earlier this year, consumers are certainly not feeling any harm or restriction, with 87% saying they felt they could easilty switch to a competing search engine.
TIME's piece calls out the opposition 'Fair Search' coalition as well:
"This loosely knit coalition opposing Google includes the FairSearch.org consortium, which is composed of several of Google’s competitors, most notably Microsoft, which has been waging a not-so-clandestine campaign against Google for years. FairSearch.org argues that Google has been using its market power to harm competitors illegally."
And most scathingly...
"As for Microsoft and its FairSearch.org consortium, there’s something unbecoming about companies that have been beaten in the marketplace appealing to Uncle Sam for relief. It’s kind of like a child who loses a schoolyard ballgame and then runs to the teacher claiming that Johnny didn’t let him win. Microsoft and its anti-Google allies have spent untold millions waging an overt and covert campaign designed to persuade regulators to hobble the search leader. Perhaps if these companies spent a little less time complaining and a little more time innovating, they’d have a better chance of competing in the marketplace."
Perhaps most importantly TIME also brings up the risk and severity of having the government interfere, referencing lawyer Glenn Manishin: "once government deems an economic sector “essential” it takes on an implicit responsibility to regulate everyone, whether they have monopoly power or not."
This is something NTU has been working to sound the alarm bells on with regards to this case. The potential for a permanent government foothold in this market is real. This fact also helps explain WHY the government and FTC are 'under so much pressure' (paraphrasing Gustin) to take action against Google - there is a carrot for government in this case, the FTC is unlikely to be solely interested in helping Google's competition.
This case has also drawn concern from a Democratic congressman, Rep. Jared Polis of Colorado, who told the FTC "I believe that application of anti-trust against Google would be a woefully misguided step that would threaten the very integrity of our anti-trust system, and could ultimately lead to Congressional action." NTU has also sent letters to the FTC among many efforts on this issue.
It's also worth taking a look at Manhattan Chamber of Commerce President Nancy Ploeger's piece in the Huffington Post which criticizes the government for risking the one bright spot in our economy over the past few years, the Internet. Ploeger provides some tremendous numbers on the Internet's contribution to job growth, the vast array of search options, and more.
This case has flown under the radar a bit, but now it is getting proper attention considering the incredible amount that is at stake for Internet freedom, free markets, and consumer choice.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Speaking of Taxpayers, Oct. 12 (AUDIO): VP Debate Dish, and More on Tech Issues
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Doug and Pete dish on Thursday's VP debate between Congressman Paul Ryan and Vice President Joe Biden. Also, a discussion of tech issues including municipal broadband.1 Comments | Post a Comment | Sign up for NTU Action Alerts
The Amazing Illegal Tax Discovery from Today's Commerce Hearing
Today's Senate Commerce hearing on the awful Marketplace Fairness Act, a bill the likes of which we've been crusading against for more than a decade now, was a comedy of errors that would have been funnier if it weren't so sad. Despite a stacked panel of six supporters testifying against just one opponent, the proceedings proved that there are huge problems for taxpayers inherent in legislation to allow states force enormously burdensome sales tax collection requirements on remote retailers WITHOUT any physical presence there. In addition, the hearing led to a stunning discovery that one panelist's business may well be collecting sales taxes incorrectly and illegally. So much for "easy" and "accurate" tax collection.
Steven Bercu, CEO and co-owner of BookPeople book store in Austin, Texas, told the committee that he felt so strongly about collecting sales taxes that his business did so even for sales into states where he has no physical presence. He has no legal obligation to do so, but he likened it to a kind of civic obligation to support infrastructure and services in other states (nevermind the fact that shipping companies that help deliver his items already do plenty of that through income and gas tax burdens of their own).
The revelation of illegal tax collection came when Steve DelBianco, Executive Director of NetChoice, gave his testimony. In it, he presented a screenshot of a purchase he made on BookPeople's website this morning which showed that he was charged what was purportedly Virginia state sales tax of 8.25%. There's only one problem: Virginia's sales tax is 5%. Mr. Bercu quickly proclaimed that a mistake had likely been made and that he'd look into it with the provider of the service that calculates sales tax collection for his business. It turns out that 8.25% is actually the prevailing sales tax rate in Austin, Texas, where BookPeople is physically located. In all likelihood, this is the source of the mix-up.
While it was somewhat amusing to uncover this mistake, it also suggests that the tax was illegally charged to DelBianco. If BookPeople collected and remitted on behalf of Virginia, they illegally overcharged him because no business can collect more than the legal sales tax rate. If they collected and remitted to Texas, they illegally charged DelBianco on a transaction which was not subject to sales tax. Under current law DelBianco has no sales or use tax obligation whatsoever in Texas and if BookPeople charged him one, that was just as illegal as a grocery store charging someone sales tax on something in a state where food is exempt from it.
Let me state that I don't believe that Mr. Bercu and BookPeople are intentionally defrauding customers or governments. This is almost certainly an honest mistake made in the process of a good-faith effort, but it shows just how difficult accurate sales tax collection and remittance can be. His business was supposed to be the poster child for how easy collection is. After all, it's so easy that he does it even though he isn't legally required to! But even the best of intentions can't iron out mistakes resulting from the confusion of 9,600 taxing jurisdictions with different rules across the country. It also suggests that perhaps the reason Mr. Bercu and BookPeople were so convinced of the ease of collecting is that his business was simply charging everyone Austin's sales tax. Current law would need to change in order to accommodate that, but that sort of an origin-based taxation system is dramatically simpler and easier to comply with than what the Marketplace Fairness Act would impose.
In the end, the hearing was mostly a jumble of minimally-useful talking points from supporters and some brief but passionate questioning from the likes of Senators Jim DeMint (R-SC) and Kelly Ayotte (R-NH). The bottom line for taxpayers is still this: the Marketplace Fairness Act undermines basic taxpayer protections by eliminating the physical presence standard, imposes huge compliance and interstate commerce burdens, and does little or nothing to promote tax reform and revenue neutrality.41 Comments | Post a Comment | Sign up for NTU Action Alerts
The Wireless Tax Fairness Act, a bill that NTU has strongly supported for years, might be a step closer to becoming law if its sponsor Senator Ron Wyden (D-OR) has his way. He intends to introduce it as an amendment to S. 2884, a bill the Senate may consider next week. Wyden's legislation would protect taxpayers by freezing state and local charges on wireless phone service for five years and preventing them from imposing multiple and discriminatory taxes and fees.
This common sense legislation is one of few bills that enjoys wide bipartisan support both in and out of Congress. According to a MyWireless.org survey, 80% of respondents support the goals of the bill and Republicans and Democrats alike have aided its movement on Capitol Hill. Late last year, the House actually passed its version (sponsored by Arizona Republican Trent Franks and California Democrat Zoe Lofgren) unanimously on a voice vote. Wyden's amendment gives us hope that the Senate will pick up on that sentiment and pass the bill promptly.
As it stands today, wireless tax rates across the country are mind-numbingly insane. Legislators constantly proclaim the importance of wireless access because it supports economic opportunity and growth, but the taxes they levy on it tell a very different story indeed. Five states charge more than 20% in taxes, 23 states charge combined rates of higher than 15%, and in only ONE state in the nation (Nevada) will you face a lower charge on wireless services than for ordinary sales. Simply put, most states are levying "sin tax"-like charges on a technology they claim to love and support.
It's not the federal government's job to fix the details of each state's insane tax system, but it is their job to prevent states from enacting dumb tax policies that harm interstate commerce. There are few markets that are more interstate in nature than wireless service, so it's perfectly appropriate and necessary for the federal government to exercise its power to eliminate the worst abuses. We'll still have a lot of work to do to fix state tax codes after passing the Wireless Tax Fairness Act, but this is an extremely important first step and it's up to us to make sure Congress takes it soon.
Stay tuned to these pages next week for more information about how the bill will proceed and what you can to to help. In the meantime, we'll be gearing up our grassroots army to push Congress to pass this bill immediately.1 Comments | Post a Comment | Sign up for NTU Action Alerts
The so-called “Marketplace Fairness Act," a bill to impose onerous tax collection requirements on remote retailers, is back again for another bite at taxpayers' wallets. We've alerted you to this threat timeand time again, and now proponents and their big-money backers are trying to sneak it through once more. Introduced as an amendment to S. 2237 (a small business tax bill) by Senators Mike Enzi (R-WY), Dick Durbin (D-IL), and Lamar Alexander (R-TN), the measure would add to the burden governments heap upon items purchased online while undermining vital taxpayer safeguards. The Marketplace Fairness Act would…
It is particularly odious and contradictory to attempt hanging this proposal on a bill purporting to assist small businesses. S. 2237 is problematic for taxpayers in its own right, but is made all the worse with an Amendment that fails on so many counts. As a practical matter, the paltry “small seller exemption” contained in the language means that numerous firms will become ensnared in a web of higher tax-compliance overhead costs. Businesses that could be contributing to a more robust economic recovery will instead squander resources extricating themselves from this trap, or worse, resign themselves to oblivion.
As a philosophical matter, the amendment treats the Internet and e-commerce as a sinister, alien force for small business, when the opposite is true. Where would brick-and-mortar retailers be, for example, without the convenience of online inventory control, or other “B2B” transactions that make management so much more efficient today? What losses would retailers suffer without the new markets for goods and services for which the Internet has provided the portal? How many millions of everyday citizens, who have created thriving online “mom and pop” proprietorships, would be denied the opportunities to provide for their families? To be clear: No Senator who claims to support taxpayers and small businesses should vote for this amendment. There are fairer, less burdensome ways to address any real “level playing field” issues in this area of commerce.
It's unclear as of now how the Senate will proceed on this amendment or the underlying small business tax bill, but rest assured that we'll be hammering away to make sure that well-financed lobbyists don't fleece taxpayers and businesses with this awful bill.
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Louisiana readers: I have some shocking news for you. You might want to sit down for this. A taxpayer-subsidized project is rapidly turning into a dismal failure. Who'da thunk it?
An audit of a taxpayer-subsidized municipal broadband provider called LUS Fiber in Lafayette, Louisiana has revealed that the company lost $45,000 per day during the last fiscal year! The Lafayette Consolidated Government suffers from $150 million in debt and must make an upcoming principal payment next year of $3.2 million. That has led to calls to cut budgets across the board by 5%, meaning fewer police and less maintenance of things that really are basic infrastructure like roads.
In sum, LUS Fiber is losing boatloads of money and exacerbating an already-difficult budget situation in the area. There is a silver lining though! According to LUS's own numbers, the project might break even by the time 2014 or 2015 roll around. Or maybe not...you know, whatever. It's just taxpayer money, which I'm pretty sure just falls from the magic money tree in the sky when we shake it at no cost to anyone.
This is, unfortunately, just another bullet point to add to the huge list of municipal broadband failures across the country, many of which we covered in a study we released last month called Municipal Broadband: Wired to Waste (PDF). In the study, we detailed the growing trend of local governments piling hundreds of millions of dollars in debt and other costs on the backs of taxpayers in order to build entire retail television and internet service providers. It's just too bad that we hadn't written the study yet when Lafayette officials decided to approve this boondoggle.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Last week, I participated in a panel discussion on "Why Tech Issues Matter" with folks from across the ideological spectrum. Despite our vastly different views on the proper size and scope of the federal government and its approach to regulating the tech space, there were a few items where we had almost unanimous agreement. One such issue was the need to free up more spectrum for use in building out America's telecommunications networks. There is widespread acknowledgment in the tech community that we could soon face a crippling capacity bottleneck absent swift action to reallocate spectrum to where it is most needed.
In fact, the Obama Administration set a goal for federal agencies to identify an additional 500 MHz of existing spectrum that could be reallocated for use in building the capacity of mobile networks. But as Larry Downes writes at Bloomberg Law, those efforts haven't borne much fruit. Despite a lot of discussion and debate in recent years, there has been very little in the way of actual movement on this existential crisis.
One aspect of that agonizingly slow progress has been (surprise!) government failure. The National Telecommunications and Information Administration produced a report on 100 MHz of spectrum currently held by federal agencies that could be better used for mobile broadband. But, as Larry detailed,
"[The] 20 agencies involved in the study demanded 10 years and nearly $18 billion to vacate the spectrum—and insist on moving to frequencies that are already assigned to other public or private license holders."
So, instead of getting their act together and moving quickly to solve at least 1/5th of the spectrum gap identified by the Obama Administration, this group of federal agencies is instead engaged in a damaging stand-off that threatens to cause even more delay and disruption.
Another stumbling block on the road to more efficient use of spectrum is the "Hell No Caucus," a set of "public interest" groups that have loudly and repeatedly opposed many of the biggest recent spectrum plays. Though every member of the Hell No Caucus would tell you they support more efficient allocation of spectrum, their actions seem to belie their stated positions. They have lobbied Congress and the Federal Communications Commission vociferously to rig the results of voluntary incentive auctions by including rules that would exclude companies like AT&T or Verizon from bidding on spectrum, despite the fact that the demands of their customers make those companies most likely to pay hefty sums for greater capacity.
But they haven't been content to limit their advocacy to spectrum legislation; they've also been extraordiarily active in lobbying the feds to wield their power to prevent so-called "secondary spectrum market" deals. The Daily Caller covered the phenomenon last week, calling groups like Public Knowledge and Free Press the "usual DC allies" of interests seeking the destruction of spectrum deals between private entities.
First it was the proposed merger of AT&T and T-Mobile, a deal widely viewed as an attempt by AT&T to secure T-Mobile's valuable spectrum. Opponents of the deal claimed they were defending competition, but T-Mobile's parent company, Deutsche Telekom, has repeatedly stated that they're not interested in operating the company and as such it has been withering on the vine. The (unfortunately) successful effort to kill the merger, which NTU strongly supported, has left AT&T without the additional spectrum it sought and T-Mobile is now a "zombie carrier," in the words of one analyst, incapable of providing much in the way of vigorous competition. So, mission accomplished for the Hell No Caucus.
Now the big food fight is over the new Verizon-SpectrumCo deal (SpectrumCo is a joint venture of Comcast, Time Warner, and Bright House). Verizon seeks to buy $3.6 billion worth of spectrum on which SpectrumCo is not building, but the Hell No Caucus has come out in full force to oppose the transaction, again citing nebulous concerns about "competition." They are vesting their hopes in a friendly FCC which, after squashing the AT&T-T-Mobile merger, has clearly shown a propensity for killing mutually-beneficial agreements between private companies.
This is frustrating, to say the least. We're staring a very real crisis right in the eyes, one that threatens to bring the scintillating pace of innovation and improvement we've seen in mobile broadband over the last decade to a screeching halt within a few short years, and the response from some groups has been to delay and destroy many of the deals that would offer hope in avoiding that fate. Even more frustrating for me, as a lonely pro-taxpayer, limited government activist is how they pass that off as "public interest" lobbying when the public interest has suffered such damage from their work.0 Comments | Post a Comment | Sign up for NTU Action Alerts
So, net neutrality. Misguided policy, likely imposed illegally by the FCC, and subject to an ongoing court challenge. In short, it's a bad idea. But that hasn't stopped advocates from continuing to sing its praises while concocting horror stories of a world without it.
First, it was Susan Crawford. Writing on Wired.com, she posited that her inability to store her viola in the first class cabin of a U.S Airways flight while on a coach ticket somehow spelled doom for an internet without net neutrality. The solution of many who think like Crawford is to impose restrictive, 1930s monopoly telephone-style regulation on internet service provision and pricing (via reclassification of internet services under Title II). If we extended that logic into Crawford's airline example, this type of regulation would rewind the clock back to the days when government bureaucrats dictated flight routes and prices, creating massive inefficiencies and effectively locking millions of Americans out of the commercial flight market. The deregulation of air transportation is considered a huge success by people across the ideological spectrum, and yet Crawford and her ilk are encouraging a return to that anachronistic model for the internet.
Then came the New York Times' Eduardo Porter, who spun a tale of the horrors of Comcast's attempt to exempt its Xfinity app on Xbox 360 from usage limitations. Luckily, free market-oriented folks much smarter than I were quick to respond. Eli Dourado pointed out the raw economics involved: broadband networks are expensive to build and those costs must be allocated among consumers somehow. They don't just disappear because Netflix delivers content via the internet.
The incomparable Adam Thierer followed on Eli's post by pointing out that the bandwidth caps Porter, et al, so detest only exist because of net neutrality regulations:
"Consider bandwidth caps, which critics paint as some sort of nefarious, anti-consumer plot. In reality, they are just a tool to manage capacity; a tool that has been necessitated by Net neutrality regulation. When the law says you are not allowed to differentiate or specialize service offerings, you have to find other ways to manage capacity and make sure you can recoup fixed costs."
Adam concluded with a few ruminations on experimental pricing structures, the likes of which you'll surely see much more in the future.
Crawford and Porter seek a world of free-flowing Netflix, ever-rising internet speeds, ever-dropping consumer prices, and vigorous competition to win the favor of consumers. So do I! The question is how best to achieve it. They seem to believe the answer is in empowering Washington to regulate just about everything internet service providers can and can't do. I can't pretend to speak for Eli and Adam, but I vehemently disagree and I think the arc of history bears out my belief that restrictive federal regulation puts a damper on innovation and proliferation of telecommunications services.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Hot off the presses! "Speaking of Taxpayers" is now "almost live" - recorded and released on the same day so you can catch up on the week's taxpayer news and notes (and Outrages!). Let us know what you think of the new equipment, format, and submit questions at firstname.lastname@example.org.
This week NTU Vice President of Government Affairs Andrew Moylan joins Pete & Doug to discuss a new policy paper on Wireless Broadband projects funded by taxpayers.
Subscribe to NTU's podcast "Speaking of Taxpayers" via iTunes.0 Comments | Post a Comment | Sign up for NTU Action Alerts
FTC’s Probe of Online Search Market: The Latest Threat to Internet Freedom
The Federal Trade Commission’s current investigation of search engine practices threatens to become the next crisis for Internet freedom and e-commerce; and it is a threat that has remained under the radar.
Many are wholly unaware of the current FTC effort (along with other probes from some state-level district attorneys around the U.S. and the European Commission) to pursue “fairness” in the online search marketplace. Of course, readers of this blog were clued into the emerging danger sooner than others, when last year NTU raised concerns over the FTC’s actions.
Since then the concerns have intensified. Now, an NTU/IBOPE Zogby poll has revealed that the American people have no interest in such government interference in the search engine realm and they are quite happy with an already competitive batch of search options. The poll found 79 percent of respondents were against government regulation of search engines, and 76 percent thought more government involvement online would make the Internet worse for consumers.
So why is this even happening? As we saw with the uproar over the Stop Online Piracy Act (SOPA), when aggrieved interests with power and waning competitive strength join hands with a government eager to grow in power, the results can be damaging to the market and freedom - evoking intense public opposition. Right now the search engine investigation is in a more nascent stage, but the potential impacts of government search engine regulation are numerous.
Imagine an Internet search where the results were alphabetized. Imagine a search that pushed politician-approved results toward the top. Imagine asking Siri to find you the nearest McDonald’s and being given the locations of 10 other chain restaurants as well. The useless (and disturbing) possibilities go on … Think of the security problems posed by removing a search engine’s ability to prioritize your results? It’s tough enough keeping children in the proper corners of the Internet; government-enforced “fairness” could potentially make that task even tougher, or end up giving the government vast search engine censorship powers in the name of security.
Ever since the online marketplace has been changing consumers’ and taxpayers’ lives for the better, governments have been proposing taxation and regulation schemes that would make matters worse. Besides the threats of the Streamlined Sales and Use Tax Agreement and so-called “Net Neutrality” that NTU identified – not to mention the flap that many others raised over SOPA – government-backed investigations like FTC’s should be on the watch list too.
If you are reading about this for the first time, there is a lot to take in, but this situation looks to be the next battleground in the fight over online freedom. Stay tuned to NTU.org and Government Bytes for more.0 Comments | Post a Comment | Sign up for NTU Action Alerts