The Universal Service Fund (USF) is a tax on the use of telephones that has been added to phone bills since 1997 by the Universal Service Administrative Company (USAC) and the Federal Communications Commission (FCC).  By 2012, the rate, known as the “contribution factor,” had reached 17 percent.  On September 11, 2024, the FCC announced that the fourth quarter contribution factor would be more than double that amount at 35.8 percent.  The only federal tax rate higher than the USF is the highest marginal income tax rate of 37 percent.  While the USF tax hits everyone using a telephone equally regardless of income, the marginal rate only applies to individual single taxpayers with incomes greater than $609,350  and to married couples filing jointly with incomes greater than $731,200.

Citizens Against Government Waste (CAGW) has long maintained that the USF is a hidden tax, and that was confirmed when the Fifth Circuit Court of Appeals agreed that the USF “fee” is indeed a tax and called into question the constitutionality of a federal entity other than Congress imposing a tax.  This ruling leaves the question of how the program will be funded should the Supreme Court agree with the Fifth Circuit that the USF tax is unconstitutional.

How to fund the program has been an ongoing discussion in Congress, but the broader and more important issue is determining whether the program as it is currently administered is ineffective and wasteful and duplicates existing broadband funding programs.  According to FCC Commissioner Brendan Carr, there is approximately $800 billion in federal funding that could be used for broadband deployment, more than enough to connect every single home in America.  There is not only enough money but also a plethora of programs.  A May 10, 2023, Government Accountability Office (GAO) report found 133 broadband programs across 15 federal agencies, with 25 of the funding programs having broadband as their main purpose.  The GAO noted that these programs are fragmented, and either overlap, or duplicate one another, and that this has made it more difficult to effectively deploy broadband across the country. 

According to the GAO, “Through these programs, federal agencies invested at least $44 billion in broadband-support activities from fiscal years 2015-2020, according to our analysis of agencies’ data.”  The report also found that the USF’s High-Cost program and the Department of Agriculture’s Rural Utility Service (RUS) programs had overlapping service areas, making the duplication of funding even more critical.  As more states continue to receive funding for their broadband deployment programs, the need for increased coordination among federal, state, and local government agencies has never been more critical to ensure that broadband access is provided to unserved and underserved communities.

An effort in Congress to comprehensively reform the USF was initiated on May 11, 2023, on a bipartisan basis through the Universal Service Working Group, led by Senate Commerce, Science, and Transportation Subcommittee on Communications, Media, and Broadband Chairman Ben Ray Luján (D-N.M.) and Ranking Member John Thune (R-S.D.).  On August 23, 2023, CAGW offered comments to the working group detailing concerns about the program, including questioning the future need for USF funding given the large amount of broadband funding available through other sources for deployment, and suggesting that Congress may want to replace the Lifeline program with the Affordable Connectivity Program (ACP) or another program that can be funded through an appropriation by Congress.   

The final report from the working group is expected soon.  However, until that time, a deeper dive into the inner workings of the USAC on how they review applications and make funding decisions should be evaluated. Congress should demand answers about the record level of the contribution factor.  This review should occur while considering the number of programs designed to provide funding for broadband deployment and ensuring that there is no waste, fraud, duplication, or mismanagement in the effort to connect Americans to the internet.