Can Tax Credits Improve Rural Broadband Access?

Earlier this month, Sen. Shelley Moore Capito (R-WV) introduced the Gigabit Opportunity (GO) Act. This bill takes the right approach to improve broadband access in rural America. By allowing investors to defer certain capital gains taxes, this legislation incentivizes investment in rural areas. Since these areas typically lack fast internet, they’re too often disadvantaged in the modern economy.

Access to broadband is absolutely critical for rural communities to thrive. High-speed broadband enables economic growth, helps businesses and government institutions run more efficiently, and improves education. 

According to the Federal Communications Commission’s (FCC) 2016 Broadband Progress Report, approximately 40 percent of Americans in rural and tribal areas don’t have access to broadband (defined as a 25 Mbps down/3 Mbps up service by the FCC). Even if one ignores the FCC’s capacious definition of broadband and uses a lower standard (of, say, 10 Mbps down), 31 percent of rural Americans still lack access. 

Unlike other areas of infrastructure such as roads, electricity, and water, telecommunications services have largely been provided by private-sector companies. Nevertheless, the federal government can also leverage several tools to improve access — such as streamlining regulations and administering subsidies or tax credits to encourage private investment. 

Section 706 of the Telecommunications Act of 1996 requires the FCC to make sure that advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. In keeping with this responsibility, the FCC administers the Universal Service Fund (USF) to fund broadband deployment projects. In fact, Chairman Ajit Pai recently extended even more funds, making one-time support available to service providers to extend mobile coverage in unserved areas in a cost effectively manner. Although this is a good way to improve deployment, there have been few attempts to incentivize investment through tax credits and streamlining regulations. Senator Capito’s bill tries to do just that. 

The GO Act takes a three-pronged approach to reduce the gap between access rates. First, it incentivizes investment by allowing companies to defer certain capital gains taxes when they convert these gains into long-term investments in specific areas designated by the states, dubbed “Gigabit Opportunity Zones.” Areas that require high-speed broadband for economic development and commercial purposes will be designated as GO zones, according to Chairman Pai’s Digital Empowerment Agenda. 

Second, the legislation makes the cost of any qualified gigabit-capable equipment in GO Zones tax deductible. This would encourage competition by helping companies expanding infrastructure in areas with fewer providers. 

By amending the Internal Revenue Code, the bill also mandates states put broadband projects in the same category as airports, highways, mass commuting facilities, qualified educational facilities, and qualified green buildings. This makes broadband projects — including those outside GO zones — eligible for exempt facility bonds, effectively making expanding access cheaper. The bill might also lead to voluntary deregulation and cutting red tape by allowing local governments to identify area-specific regulations that can be cut to incentivize investment. 

Capito’s home state of West Virginia ranks 45th in the nation for broadband access, with up to 74 percent of rural West Virginians lacking access. Sen. Capito introduced the “Capito Connect” plan in May 2015, which outlines three broad steps to increase broadband access for her constituents. She’s also visiting local businesses in rural West Virginia with Pai to bring more attention to this issue and entrepreneurs’ specific needs.

There is considerable support for broadband deployment on both sides of the aisle. Bipartisan coalitions in both the Senate and the House wrote letters to President Trump urging him to include funding for broadband deployment in his $1 trillion infrastructure plan. The President has confirmed that broadband spending will be in the package as well.

Unfortunately, however, Sen. Capito’s bill has received little media and congressional attention since it was announced three months ago. The Senate Finance Committee has not scheduled a hearing yet and with the session ending soon, it is likely that it never will. But the bill, if enacted, will improve access to broadband and help rural Americans compete in the global economy. Lawmakers should give the GO Act the attention it deserves.   

Pranjal Drall is a Policy Fellow at TechFreedom. He is a rising sophomore at Grinnell College, Iowa where he is pursuing a BA in Mathematics and Economics. You can follow him on Twitter @PranjalDrall.