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BROADBAND TAX INCENTIVES
Key Points
· The proposal would provide new investment tax credits for broadband facilities in rural, underserved, and unserved areas.
· As a stimulus proposal, the credits are probably somewhat less effective than incentives that do not restrict the types of investments business can make.
· A potential justification is that broadband is a critical part of modern infrastructure and its more rapid dissemination could yield social benefits that private investors would not fully capture, although credits also may divert capital from more productive uses.
· JCT estimates that the proposal would cost $110 million over 10 years.
Current Law
Taxpayers may recover the costs of investments in business machinery and equipment over assigned recovery periods, using the modified accelerated costs recovery system (MACRS). Under MACRS, these investments can be recovered over periods ranging from 3 to 25 years, using accelerated (200 or 150 percent declining balance) depreciation methods.
Stimulus Proposal
A 10 percent investment credit would be provided for investment in current-generation broadband in rural and underserved areas and a 20 percent credit in unserved areas. The amount of cost that could be recovered through depreciation would be reduced by the amount of the credit. The credit is subject to the rules and restrictions for general business credits.
Discussion
The credit is similar to other special business tax credits in the law, where the government has determined that some investments have more social value than market returns indicate and merit taxpayer subsidy. Some may view broadband as a part of the nation’s critical infrastructure (analogous to telephone service and electric power in earlier years when they were not available to everyone) that we should develop faster than private markets would do without a subsidy.
This proposal would provide no special stimulus benefit. Targeted investment subsidies are marginally less effective as stimulus than more general investment incentives that lower the cost of any potential investment and are therefore easier for firms to undertake quickly. The justification for subsidizing broadband is that social rewards from its faster dissemination may exceed private rewards to investors.
Grade: C
Would spur some new investment by accelerating dissemination of broadband, but like other investment incentives, its benefits would take time to materialize and it could pay for investments that would be undertaken without the credit.
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