The Trump administration proposed plans giving two big wins to the nation’s largest communications companies on Wednesday.
Early in the day, the President proposed tax cuts that would make AT&T, Verizon, and Comcast among the biggest winners of his plan. Later, his appointed head of the Federal Communications Commission proposed lifting so-called net neutrality rules that put limits on Internet service providers.
At least that’s what’s been announced so far.
The tax plan, which was offered in a bare bones summary, would slash the corporate rate to 15% from 35%. While many companies in the technology and pharmaceutical industries are able to shield profits from the corporate tax by stashing them overseas, thus making their own reported profits look larger, communications services companies that mainly operate domestically have no place to hide and their reported profits look smaller.
For example, Google reported last year owing $4.7 billion in taxes on $24.2 billion of pre-tax profits, a rate of 19%, and Merck (MRK) paid $718 million on $4.7 billion, or about 15%. By contrast, AT&T reported paying $6.5 billion on $19.8 billion of pre-tax income, or a rate of 33%, Verizon paid $7.4 billion on $21 billion, or 35%, and Comcast paid $5.3 billion on $14.4 billion, a rate of 37%.
Tech, pharma, and other industries that used the overseas tax strategy do get a proposed one-time benefit from Trump’s plan, with a promise to let them bring home the accumulated cash at a new low rate. But they don’t benefit over the long term from the corporate rate being slashed from 35%, since they already pay much less than that annually.
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Congress must approve the plan, of course, and that could be a major hurdle. The plan mentions, without any detail, doing away with most tax breaks and deductions, and could cause the deficit to skyrocket.
On net neutrality, Ajit Pai, the FCC’s chairman, unveiled his plans for killing net neutrality rules enacted during the Obama administration—or at least part of his plan.
The 2015 rules prevent Internet service providers from blocking, slowing or otherwise discriminating against web sites and online services. That’s meant to prevent a company like Verizon from demanding extra payments from a popular online service like Spotify that is trying to reach customers on Verizon’s network. It’s also to stop a company like Comcast from protecting one of its other businesses, like cable TV, from online competitors such as Google (GOOGL) YouTube TV by making video load more slowly or subjecting the streams to data caps.
The rules also designated the ISPs as “common carriers” like telephone companies, opening them to a host of additional regulations by the agency. That was because courts had struck down two earlier versions of the rules that didn’t make that designation, saying the FCC otherwise lacked authority to impose the limits. Obama-appointed FCC chairman Tom Wheeler used the additional common carrier authority to impose strict privacy rules on the Internet service providers, though Pai’s Republican allies in Congress have already killed that policy.
On Wednesday, Pai offered only half a plan for how he will proceed. The common carrier designation will be revoked, he said. As to how the FCC should proceed in actually protecting net neutrality and enforcing the no blocking, slowing or discriminating principles? Pai said he would seek public comment. Given the prior court rulings, it’s unclear how the agency could impose the rules without relying on its common carrier authority. Democrats are already threatening to sue to block Pai’s plans.
That means that once again AT&T (T), Verizon (VZ), and Comcast (CMCSA) are lined up to be the winners if Pai’s plans go through, after they are freed of the FCC’s powerful authority to regulate and oversee common carriers. And there is no plan yet offered to limit their ability to favor their own content, disfavor smaller companies they compete with or seek extra charges from popular online sites and services that want to reach their Internet subscribers.