During a Group of Seven (G7) meeting on June 5, 2021, economic and finance officials from Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States agreed to back a new global minimum corporate tax rate of at least 15% on companies worldwide. They also agreed to collect taxes on some of the profits made by multinational companies within their own countries, regardless of the location of the company’s headquarters. It’s both an effort for governments to raise more revenue and to end a practice that some critics describe as a “race to the bottom,” in which countries offer lower and lower effective tax rates to bring in the business of large multinational companies.
But there is a long way to go for this announcement to turn into a new binding global tax regime. For starters, the G20 and the Organization for Economic Co-operation and Development (OECD) will be brought into negotiations on the agreement later this year, which will include more than 125 countries. It won’t be easy. Ireland, for example, has a 12.5% corporate tax rate (and an effective tax rate of less than 1%), which has helped it attract significant investment and tax revenue from companies such as Apple, Google, and Facebook. Ireland’s Finance Minister Pascal Donohoe has already indicated he will intensely push for a compromise in upcoming negotiations. Hungary, as well as some other central European countries, have stated they will not support the G7 tax agreement without substantial exemptions for domestic business activities. Future negotiations will hammer out the details of exemptions and other concerns, but in the end, other G20 countries certainly won’t have veto power. Adoption of the global corporate minimum tax rate by a majority of the largest economies could be enough on its own to make it the effective standard.
The greatest obstacle to adopting the global corporate minimum tax rate might lie in the legislatures of the G7 countries, including the U.S. Congress. As it stands, agreeing to this global tax reform would require an international treaty, and thus need to meet the constitutional requirement of support by two-thirds of the U.S. Senate. With several U.S. Senate Republicans already voicing their disapproval of the agreement, and no guarantee of Democratic control by the time an agreed treaty is up for a vote, it leaves adoption of the agreement in question. This has led Democrats to look for the possibility of adopting the agreement by means of budget reconciliation procedures, which only require a simple majority. The feasibility of this method is currently unknown. Chairman of the Senate Finance Committee, Senator Ron Wyden (D-OR), stated that “those are all questions that lawyers are now immersed in,” and that “there’s a lot of heavy lifting to do here” in order for the U.S. to adopt the new tax agreement. All of these hurdles for securing adoption of the agreement leave out the practical challenge of enforcement, which will need to be addressed for any effective deterrence in the use of tax havens. The recent G7 agreement, although significant, faces a long road ahead.
The State of Affairs
On May 19, 2021, a reckoning came for the wild cryptocurrency market, with Bitcoin and other crypto assets sinking as much as 40% in a matter of hours—a reminder of the risks of this volatile asset class. It came just weeks after Elon Musk appeared on Saturday Night Live to proclaim himself the “dogefather,” a reference to his regular boosting of the Dogecoin cryptocurrency, whose value had recently run up as much as 12,000% in 2021 alone.
Why does this all matter? Earlier this year, Bitcoin’s market cap approached 10% of the total value for all gold mined globally, and Dogecoin’s market cap exceeds that of Snapchat or General Motors. When an asset class gets this big, it tends to get Washington’s attention, but the U.S. still hasn’t created clear “rules of the road” for exchanges and investors. This primer discusses the state of cryptocurrency and a few major U.S. regulatory developments that could be on the horizon.
What are Cryptocurrencies?
Bitcoin was created in 2008 following the global financial crisis by a pseudonymous developer (or group of developers) named Satoshi Nakamoto. It is considered to be the first “decentralized” cryptocurrency because it is not managed by a central bank, but rather, transactions are peer-to-peer, with every transaction recorded on a public ledger called the blockchain. This blockchain provides each user with a “public key” (a unique user code) to keep individuals’ identities confidential.
Cryptocurrency: Is It Decentralizing and Democratizing Finance or Doing the Bidding of Drug Traffickers? It Depends Who You Ask.
The Case For Crypto
“Bitcoin is one of the greatest technological advances that humanity has ever seen and it can make a bigger impact on society than any of us ever imagined.” — Tim Draper, Venture Capitalist
Crypto advocates suggest it can make global payments more accessible and affordable, and that it can cut out the middleman for a range of transactions. With a single credit card purchase, there can be five or more parties required to complete the transaction: Consumer, Merchant, Issuer, Acquirer, and Switch. For example, say you (the Consumer) buys a shirt from an online retailer (Merchant) using a card provided by Bank of America (Issuer).
Your transaction will be processed by Square (Acquirer), and Visa (Switch) will ensure that the funds are transferred from your account to the Merchant’s Square account. The large number of parties involved means that each transaction can come with a 2-3% transaction fee. Money can also take a long time to move from account to account, with transaction settlement times of up to two days. Since crypto transfers are peer-to-peer, transactions are often faster and cheaper than traditional credit card payments.
The security and privacy provided by cryptocurrency is an additional benefit which is supported by its underlying blockchain technology. Using a cryptographic key unique to each transaction, which is then validated and added to the public ledger, ensures that the system is technically tamperproof. Using cryptocurrency also provides greater confidentiality thanks to its use of digital addresses, which contain no other information about your identity. A new address can be used for each transaction, providing an additional layer of confidentiality. However, this only makes your personal information more secure, as there are still methods to link real-life identities to the public addresses of cryptocurrencies.
The Case Against Crypto
“Of course I hate the Bitcoin success. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air.” — Charlie Munger, Vice Chairman, Berkshire Hathaway
But crypto also has a few distinct issues. Not unlike cash, cryptocurrencies are popular among criminals because they provide relative anonymity to transactors. As a result, cryptocurrencies have gained a reputation as tools for discretely buying drugs and sex online, laundering money, and sponsoring terrorism. According to a 2019 RAND report, groups like Al-Qaeda, the Islamic State of Iraq and Syria (ISIS), and Hezbollah have used cryptocurrencies for drugs and arms trafficking, remittances, and operational funding.
Additionally, many cryptocurrency exchanges may not be as secure as once believed. According to a 2021 analysis from Traders of Crypto, nearly half of the largest cyber thefts of the past decade have involved cryptocurrencies. During the 2018 hacking of Coincheck, which would become the largest financial heist in history, more than $530 million was stolen from users with cryptocurrency stored in the exchange. Another famous example of this type of security failure comes from the hacking of Mt. Gox, which led to the company declaring bankruptcy in 2014. At the time, it was the leading Bitcoin exchange, handling 70% of all transactions worldwide. Mt. Gox announced that over 850,000 Bitcoin (valued at $450 million) belonging to customers was missing or stolen. In the majority of cases, the perpetrators of these heists are never identified, but a large portion of attacks have been traced back to North Korean-affiliated hackers (30%) and the Russian-speaking cybercriminal organization Silence Group (four percent).
The decentralized nature of cryptocurrency can also have its downsides. Coinbase, the leading cryptocurrency exchange in the U.S., lists 62 different tradable cryptocurrencies on their website. However, according to CoinMarketCap, there are nearly 10,000 different cryptocurrencies out there, and more are being created every day. Creating a new cryptocurrency is surprisingly easy, and with only a modest fee, a token generator can create a new cryptocurrency in a matter of minutes.
In an unregulated environment with significant speculative interest, many cryptocurrency creators can use the opportunity as a “get rich quick” scheme and attempt to drum up interest through social media. When enough people have bought in, a cryptocurrency creator can “pull the rug out,” sell their shares, and leave investors with nothing. Similarly, copycat coins, such as Shiba Inu or Dogelon Mars, look to ride the wave of success of other cryptocurrencies or confuse potential buyers in order to make an easy profit.
Dave Portnoy, the founder of Barstool Sports, recently provided a clear example of this kind of risky speculative behavior. While announcing his endorsement of the cryptocurrency named SafeMoon, which rose 20% in the span of a few hours after posting his endorsement to Twitter, Portnoy stated that “he has no idea how this works” and “if it is a Ponzi [scheme], get in on the ground floor.”
The Current U.S. Regulatory Framework Is Nonexistent
The U.S. Securities and Exchange Commission is currently caught between warning consumers of crypto’s potential harms, while also debating the facilitation of its widespread adoption. In a statement released on May 11, the SEC cautioned investors to “consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.” In the same public statement, the SEC further stated that it would “consider whether, in light of the experience of mutual funds investing in the Bitcoin futures market, the Bitcoin futures market could accommodate [exchange traded funds] ETFs.” Past proposals seeking approval for the creation of a crypto ETF have failed under previous SEC leadership, but the latest statement from the SEC at least opens the door to the possibility.
A future crypto ETF would offer greater accessibility to new investors interested in cryptocurrency, but at the potential cost of greater regulatory oversight that runs antithetical to the decentralized nature of cryptocurrency. Prior to such an approval, the SEC may choose to wait until Congress has passed some regulatory framework before giving any sort of endorsement of the risky asset.
Currently, most federal policy for cryptocurrency is set at the agency level, with oversight responsibilities spread out across the Securities and Exchange Commission (SEC), the Commodities and Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), and others. Part of the problem with this framework is that these agencies don’t always communicate with each other, making it more difficult to keep pace with the explosive innovation happening in digital assets. In fact, the U.S. government doesn’t have a uniform definition for what cryptocurrency is, particularly which coins are “securities” (which are regulated by the SEC) and which are “commodities” (regulated by the CFTC).
At the end of 2020, the SEC sued the blockchain company Ripple, citing an unlawful sale of $1.3 billion worth of XRP, the digital currency managed by the company. The SEC labeled XRP as an “unregistered security,” while Ripple argued that coins should be treated as a currency, since the holders of XRP are not seen as stockholders with equity in the company. However, since XRP is highly centralized (largely owned and sold by Ripple), the SEC feels that its assets meet the increasingly outdated definition of “security,” as set forth by the 1946 SEC v. Howey case.
Since companies that manage securities are bound by law to register all sales, companies like Ripple may face similar consequences if their coins are deemed too centralized to qualify as currency. While the rest of the world is setting guidelines, the U.S. retains this type of regulatory and statutory uncertainty that dampens innovation for digital assets and scares off potential investors. For example, in February 2021, Switzerland enacted the Blockchain Act to provide legal standing to tokenized crypto assets, while also implementing anti-money laundering regulations. This bill was lauded by crypto enthusiasts, with Thomas Jutzi, Professor of Financial Market Law at the University of Bern, calling the law “a regulatory framework for blockchain [that is] among the world’s most progressive. Switzerland thereby asserts its leading position not only regarding its innovative blockchain companies, but also regarding its legislation.”
Before the U.S. begins to expand access to coins by approving the creation of crypto ETFs, or legislate on cryptocurrency’s relationship to terrorism, crime, trafficking, and money laundering, it likely has to:
- Make explicit which agencies are responsible for specific crypto-related harms,
- Establish a channel of cross-agency cooperation in the event of overlapping responsibilities, and
- Establish a uniform definition for how to treat various coins.
The Eliminate Barriers to Innovation Act, a bipartisan bill introduced by Rep. Patrick McHenry (R-NC) and Rep. Stephen Lynch (D-MA) in March 2021, would set up such a regulatory framework for digital assets like cryptocurrency. The bill, which was passed by the House of Representatives in April, would set up a working group of members from the SEC, CFTC, and private sector with the goal of “ensuring collaboration between regulators and the private sector in order to foster innovation.” The bill has been received by the Senate but is pending review.
Ensuring affordable broadband access for every household has never been more important for those working and learning from home. Closing the gap in internet connectivity among American households by combining short-term and immediate local solutions with long-term funding to improve affordability is vital. To learn more about the digital divide facing us in the wake of the pandemic, as well as how we can go about solving this issue, policy analyst Zane Heflin had the opportunity to speak with the Executive Director of the National Digital Inclusion Alliance, Angela Siefer.
Angela has been working in the field we now call digital inclusion since 1997. She has helped physically set up computer labs in underserved areas, managed broadband conferences, conducted research, managed digital inclusion programs, assisted with the Department of Commerce’s Broadband Adoption Toolkit, testified before a U.S. Senate Sub-Committee and more. In 2015, Angela helped found NDIA.
Angela Siefer: My name is Angela Siefer. I’m the executive director of the National Digital Inclusion Alliance. We’re a 501(c)(3) nonprofit organization. We support digital inclusion programs around the country by helping them to talk to each other and learn from each other. At the same time, we use that learning to advocate for policies and resources that would help them to do their jobs and their jobs are to get folks connected to the Internet at home, make sure they have a device that meets their needs, a tablet or a computer, and the digital skills to use those things.
Zane Heflin: Great. The issue brief that I wrote talks about the Digital Divide. Could you just briefly explain in general terms what “the digital divide” represents?
AS: The digital divide represent the lack of connectivity and skills that, well, individuals and communities have. It is sometimes misunderstood to be an issue of availability of infrastructure, but just because infrastructure is available doesn’t mean folks are using it. It is more helpful to look at it as a use issue: Are individuals and communities using the technology and the Internet, the tools that are out there, for their own purposes and for the betterment of their communities?
ZH: With the COVID-19 pandemic keeping everybody at home, working from home, studying at home, can you speak to how that has changed the way that we think about internet access and more specifically, how it ties into the digital divide that you’re talking about?
AS: The work of those who have already been working on the digital divide is elevated now. In fact, I just got off a call of our community. We had about 50-some members on that call where we were kind of joking, kind of serious about the fact that we don’t have to explain the why as much anymore. In the past, we were more having to explain why is it essential that everyone has access to the Internet and a computer and understands how to use it. That’s not a common topic. It’s more common now for those on the ground and for NDIA to jump right into, “Okay, let’s talk solutions,” because the problem is pretty crystal clear.
ZH: Right, right. Yeah, that makes a lot of sense. I think that’s why we’ve taken an interest in it, because it’s so clear now just how important that issue is. That’s been the impetus for us to start writing about it and try and bring some more attention to it since this is the best opportunity, I’m sure that you can attest to, that people are really focused on it.
AS: Yeah. It’s the issue of it, “Don’t let a good crisis go to waste,” kind of idea. If folks realize the importance now, boy, let’s use that to not only solve short-term connectivity issues, but let’s solve this long term.
ZH: I wanted to talk briefly about who needs help and why. You spoke to it earlier in explaining what the digital divide really means, but there’s a lot of debate about what is the main cause of the digital divide. You talked about, “Oh, is it access?” Some people think that that’s the issue. Some people think it’s pricing. Some people think it’s just whether or not they understand the use of the Internet and why it’s valuable. Can you speak to what you think are some the main causes of the digital divide?
AS: It’s all those things. A comprehensive solution has to get at all of those barriers. We need to get at the fact that we don’t have infrastructure everywhere and no, satellite doesn’t count, right? And mobile service is not enough. Those of us who can have both mobile and wireline, we do for a reason, right? It is your backup. It is your mobile. That’s why you’re with the cellular is that when you’re at home, all the families are telling their kids, “Make sure you’re not using your data on your phone,” right? You make sure you’re using the house’s wifi. The availability is an issue, but then also, the cost is an issue. We know that in the United States from census data, 18 million US households, not individuals, but households do not have home internet. It’s not because it’s not available, right? 14 million of that 18 million are in urban areas. We have infrastructure in urban areas. There’s something else going on. When you dig into the data, the lower household income, the less likely they are to have Internet at home. That is a big cost issue, but connected to the cost issue is the use issue of: Do you know how to use it? What are your digital skills? Privacy issues? Are you worried someone’s going to steal all your information? Legit, right? We definitely need the digital literacy support and training that’s available. It’s not really available. I think it is helpful for folks to think through in your own environment, who you go to when you have a technical problem: Is there somebody in your family? Is there a friend? If you can’t figure something out, who do you turn to? We all have those people. Sometimes, we are that person for family members. Then there are the individuals who will google something and turn into their more friends when there’s a problem. If you don’t have a network like that, what do you do? You just don’t solve the problem. Then you’re not using the technology because you couldn’t solve the problem. We really have to get at where’s that support network.
ZH: You spoke to one of the main issues being this divide between while urban households make up a large percentage of the people that aren’t currently taking advantage of the internet services that might be available, but could you speak a little bit as well about what are some of the unique issues that are facing rural households versus urban households?
AS: Yeah, actually, I want to be careful that cost is an issue for both urban and rural. Rural has the added problem of it might be there and it’s really expensive and they may only have one choice, right, and that’s one of the reasons that’s so expensive, then the added problem of in some areas, there could be nothing. That is not okay. Or there’s something and it’s incredibly slow, oh, and pricey, right? Rural has all of those issues in addition to not having a structure and resources for that tech support. Where do folks go for digital literacy training? Who are they turning to when they can’t get something to work? Just because the density is less, so there is less of that. We have to figure out how to address that problem in urban and rural. The digital divide is not something that separates us, unfortunately. It is something. I mean, it is everywhere. You can’t really even say it’s only in one geographic area because anywhere where there’s poverty and there’s a lack of density, you have problems.
ZH: Yeah, absolutely. Well, with your kids at home, I’m curious, maybe they’re already facing some of these issues, but I know students, for example, are having to deal with, studying from home, learning from home and taking advantage of some of these distance-learning tools and things like that and there’s an expectation this will probably continue into the coming fall semester. In your opinion, what are some of the things that need to be done to support students that maybe don’t have easy access to the Internet to make sure that they can succeed in the classroom?
AS: There’s a growing understanding that school the next school year is not going to look like we all want it to look like, so that support does have to encompass all of the things that we’ve been talking about: Do they have a consistent internet connection that is reliable and it’s fast enough speed? Do they have the right device? A mobile phone is not the right device. Some kids are really still doing their homework on a mobile phone because they do not have a computer or a tablet. Again, making sure it’s the connectivity, it’s the device, and it’s that ongoing support. I talked to one of our affiliates today, who the term that they’ve been using to help the kids is “virtual mentor.” They have virtual mentors that they’re not teachers, they just talk kids through what it is that they’re struggling with. It is sometimes about the schoolwork. Sometimes, it’s about the technology itself. She alerted me to the issue of a lot of schools are using Google Classroom and the different users, if the family uses the same computer and one child is logged in into their Google account and then the next child that comes on doesn’t log into their own account and is still using their sibling’s account, the school will log them as not having participated. They are, they’re doing the work, but they’re not logging the hours of having done the work, which is kind of ridiculous in itself of, but that’s a technical problem and that’s something that someone who understands that could say, “Oh, let’s make sure that you’re logged in as yourself before we get started here.” Having those people to be able to turn to, I think that’s an aspect of this whole thing that has not really been discussed enough.
ZH: That’s fascinating. Do you think that some of these tech companies like Google will need to integrate themselves and get into a closer discussion with some of these school districts that are taking advantage of things like Google Classroom to make sure that some of the design aspects are functioning and working towards helping them?
AS: Most certainly, but I also think the responsibility goes way beyond those who build the applications. In some of the communities who are recognizing the challenges and moving faster to solve those, they are doing that with community volunteers, with corporate volunteers. It’s not even always paid staff, right? It is people who want to be helpful. It is like the role that you play with your dad, right? Being able to be that person who’s like, “It’s okay. I know you’ve not used Zoom before.” My neighbor is a counselor, a marriage counselor. She realized she needed to move her marriage counseling online. She about lost mind because that’s not her world, right? She had to figure out how to use Zoom and set it up appropriately and all the privacy concerns, but that’s not her background. She had folks she was able to turn to. In fact, we did some consulting by yelling across the street one day in order for us, my son and I, to be able to help her. How do we make sure that that kind of support is available for everyone and recognizing it’s not just our kids, right? Education is a big issue and it’s a big issue, not just for K-12, but also for the college students. Then it’s also an issue for everybody else, including those who thought they were going to maybe get through life without using technology and now, I think we’re at a point of discussing, “Is there really a choice anymore?” We would like to think there’s a choice, but in this age where it is safer for your own health and the health of your community if you don’t go out as often, is it still a choice?
ZH: That’s interesting. Yeah, speaking to the counselor, your neighbor, my sister’s a counselor herself. She’s had to move everything over to telehealth and doing that. She’s actually a play therapist, so she has to work with kids, which makes it even tougher. You don’t have a playroom in which to interact with the kids, so you’re having to come up with some other ways to try and connect with them. I’m sure a lot of people are trying to deal with it in that same way.
AS: Oh, that’s fascinating. It is a crazy challenge.
ZH: Yeah, absolutely. We mentioned Google Classroom and some of the things that tech companies can do to help out in this coronavirus pandemic and assist the students, but I know a lot of telecom companies have already tried to make some improvements to their internet service, increasing speeds, limiting data caps, that sort of thing, providing complimentary internet service to low-income individuals. Do you think some of these measures are sufficient to meet up to what is necessary and do you think telecom companies need to be doing more?
AS: I think the efforts to date are appreciated by lots. I know I appreciate them, NDIA appreciates them fully, but they are really insufficient. We cannot rely upon the charity of internet service providers for something that is so essential to everyone, which is that internet in your home. I don’t want to diminish what they’ve done. It is really valuable, but at the same time, I think we have to critically look at who isn’t covered by any of those free and low-cost offers. We have to look at the pledge that the FCC was asking providers to sign onto. That had to do with keeping service. That doesn’t address those 18 million households that don’t already have. It that’s just for those of us who are fortunate enough to already have it. Yes, that’s great, but it’s missing this whole segment. After struggling with ourselves and with partners and community members, I don’t see any way around a federal broadband subsidy, that that has to [inaudible 00:15:27] at the end of that. There is talk of one now. The House Democrats have suggested what they’re calling an “Emergency Broadband Benefit,” same thing as a broadband subsidy, but we’re not getting enough bi-partisan discussion around it and that’s really what we have to have because this is not a partisan issue. It should not be a partisan issue.
ZH: Right. That’s exactly why, I mean, my own organization, The New Center, is supposed to be looking for those opportunities for, common sense bipartisan policy. This seems like a no brainer and why I think it was really natural for us to write about, but it is surprising to see that there is so much debate about something that should be relatively straightforward for, I think, both parties. I did want to ask you a little bit about that. With Congress, you mentioned there they’re currently debating adding those broadband subsidies. I mean, obviously, that needs to be a priority, but are there some other, maybe two or three items that you think are really necessary to be included in a next relief bill to expand broadband?
AS: Sure, sure. The other one that we would ask to have included is the Digital Equity Act. That one there’s already a bill in both the House and the Senate and that was pre-COVID days. We need to get back to that and look at it now during COVID days of what it is that that means now and what that bill got at was all of the three barriers that I mentioned and those solutions: the connectivity, the device, and the digital literacy support. In fact, the way we tend to talk about it now, we used to say that it was what we needed was “digital literacy classes and one-on-one support,” but now, it’s more like tech support so that you can get them to just be able to do enough to take an online class. It’s both. It is the digital literacy, but it’s also, gosh, can you even take any of those classes online? That’s a big one. We look at the use of E-rate for schools and libraries to be able to extend their networks. Right now, E-rate, it’s defined as “a subsidy that can be used in the building.” That might be a school building or library building, but is that where and libraries provide their services now? It’s not. Even in the fall, might be a little bit in the building and there’s still going to be a lot at home. We have to figure out what the answer is. The vehicle, there could be various vehicles, right? It could be a vehicle that uses… In fact, the emergency broadband benefit uses the mechanisms of Lifeline. They don’t call it “Lifeline” because that’s politically fraught. Super. Let’s not call it “Lifeline,” but those mechanisms are there to be able to facilitate it. E-rate is the same thing: the mechanisms are there. If we created another way of doing it, and there is discussion of that, there’s the idea of using a voucher, my perception is that it takes longer to stand that up. If the mechanisms don’t already exist, we have to create the mechanisms, yes, for moving forward. For the emergency part of it, I know the crisis is elongating, but we’re still in a crisis and we’ve got to figure out solutions really, really soon.
ZH: You mentioned the Lifeline program. A good portion of the solution, I think, lies somewhere in, if not by name, the Lifeline program, but something to the same effect. Could you speak a little bit about the Lifeline program in general, how you see it as a long-term solution, and maybe why you think that it has become this politically-charged issue?
AS: Yeah. Lifeline started out as a phone subsidy, started out as a wire-lined phone subsidy, right, your copper phone line to make sure everybody had that emergency service of having a phone in their home. Then it was widened to include mobile phones and then four or five years ago, it was widened, and then now it is supposed to be also for broadband. The reality, though, is that most of the Lifeline service available is a phone service, not a broadband service. The mobile phones have three gigs of data. I don’t know if I’d call that “broadband.” I call that “emergency data,” right? It’s three gig. You’re not going to get real far with that. The structure is such that it could be used for a broadband subsidy. The Universal Service Administration, US, USAC has built a national verifier. Most of the states are participating. It’s not perfect, but it’s better than anything else we have to verify eligibility based upon benefits folks are already getting: SNAP, veterans benefits, housing benefits, right, all the ones you would expect to be there. That can be used to verify eligibility. The parts that would be left behind in this, in a broadband subsidy is the: Who are the service providers? With Lifeline, it is only what is called “ETCs,” eligible telecommunications carriers, but it a broadband subsidy, that doesn’t make sense. Why would we only limit it to the phone companies, cable companies? Why are the wireless providers that are particularly in the rural areas? We need to make sure that anybody who’s providing broadband can participate because we just don’t have enough to limit it. That’s ridiculous. There’s lots of challenges with Lifeline right now, but it is still really valuable, right? We can’t throw the baby with the bathwater kind of idea. Some of the challenges we’ve had with lifeline have been with what often is referred to as “waste, fraud, and abuse.” People who don’t have service, the provider would claim that that person has service, but they don’t have service, and then the provider is getting reimbursed for them. The inaccuracy of requesting the reimbursements, any of that would need to be figured out in a long-term broadband subsidy. An emergency broadband subsidy, the way the current version is written right now that’s being proposed by Representative Veasey and the other House Democrats is that it’s pretty open: The providers can decide on their own eligibility. I mean, not the eligibility, the eligibility’s set, but they can prove the eligibility in their own way. They don’t have to use the national verifier if they don’t want to do. It is pretty much written to make it easier for the providers to participate, because it won’t be mandatory. If it’s not easy, they’re not going to do it. It has to be easy for them to participate.It’s also set up as a $50 subsidy towards an existing service, not asking for a new service to be created, which is what Lifeline is. You have specific services that are Lifeline services, whereas with the emergency broadband subsidy, it’s more, whatever you got, as long as you can show us that you’ve advertised that price, take $50 off, the consumer pays the rest. If it was less than $50, say if it was $45, you’re going to get reimbursed $45. As long as you show us that that’s what you were charging prior, you’re solid.
ZH: Yeah, I wasn’t super familiar with that aspect in my research, but you did speak to something that I did see pop up time and time again. You spoke about “waste, fraud, and abuse.” I think generally data about the scale of the issue seems to be a problem. What can we reliably use as a data set to identify what households really don’t have this broadband access and which households do? Can you speak a little bit about maybe the challenges for your organization, NDIA, in trying to make sure that there’s accurate data out there about exactly what the scale of the issue is?
AS: The problem with accuracy of data tends to be in terms of what broadband is available. The accuracy of data in terms of who’s not subscribing, we mostly use census, the American Community Survey data. It is only the five-year data that we can use to get down into census tracks. Having that be more often, right, one-year data down the census tracks would be lovely. We don’t have that type of data. That would be more helpful. I would clarify that the challenge with data has more to do with availability of the infrastructure, not use of the infrastructure. We generally don’t complain about the census, American Community Survey, but we have lots of complaints about FCC’s Form 477 availability data.
ZH: That’s where I’ve seen most of the complaints directed. You mentioned that the use is one aspect of the data, but pricing is another that I’ve seen come up time and time again, that there isn’t a whole lot of reliable data there.
AS: There’s no data. The best we have is some of some entities that have gathered introductory rates from the providers mostly and some regular rates from the providers, but nobody has a total data set that’s all regular rates, which means the data sets that are out there because they mix the introductory rates with some regular rates, how valuable is that? If somebody can only have that introductory rate for six months or 12 months, then your data is skewed.
ZH: Yeah, absolutely. I mean, would you imagine that the FCC would at some point be able to provide that pricing data or is this sort of a thing that, well, there’s a lot of things that need to be addressed before we get there?
AS: I think I have been pleasantly surprised to see the focus on the need for privacy on pricing data. We had not seen that prior, really. That’s all within the last year. NDIA has been calling for it for a couple of years now and we hadn’t really seen movement. It’s one of those situations where the crisis has definitely drawn attention. I think one of the ways that that happened was this sudden awareness that so many school kids in particular didn’t have Internet in urban areas. There was really, I think, some folks, just A, hadn’t thought about it ever, and B, the assumption that if it’s an urban area, they don’t have a problem with, which is why even still, we will see very well-meaning folks refer to the digital divide as a “rural problem,” which is simply not accurate. What the crisis did is everyone was like, “Those kids don’t have Internet? You’re kidding me.” Then they want a go at solving that.
ZH: Yeah. I mean, to that issue, you spoke about the E-rate program earlier and I know the sudden realization that, “Oh, hey, these urban students don’t actually have access,” we’ve seen a bunch of innovative, creative solutions from local school districts and communities such as wifi-enabled school buses and lending out mobile hotspots where available. Have you seen some local community, maybe creative solutions that you thought were particularly effective that should maybe be implemented further, maybe nationwide as opposed to maybe some communities or states?
AS: I think the wifi in parking lots and the wifi on school buses is creative and innovative, but it’s also, it’s an innovative BAND-AID. We can’t expect kids to do their homework in a parking lot. We can’t expect somebody to apply for jobs in parking lots, fill out their unemployment in parking lots. Even if you think about the process of applying for a job, you don’t just apply for the job, then they call you and say, “Okay, you’re all set.” No, no, it doesn’t work like that. They email you back. They want you to fill out another form. They email you back and they say that they need you to go get a drug test. There’s this interaction which you’re not getting because you already left the parking lot. The parking lot is unfortunately the best we can do in some rural areas right now because the infrastructure doesn’t exist. In urban areas, it’s ridiculous. I’m just going to say, it’s totally unacceptable. In a place where the infrastructure exists, we have to make sure those folks have it in their homes. If the infrastructure doesn’t exist, we need to build it out because again, it needs to be in their homes. I appreciate that folks are doing that, but I also don’t want anyone to be like, “Well, we solved that problem. We’ve put it in the parking lot.” Okay, you didn’t really solve the problem. I think the other innovations that we’re seeing are there’s a lot of real talk now that I was not hearing before about maybe we should build around network. I think we’re going to see, and I’ve started asking around, “Are you guys hearing this? Are you hearing this?” Yes, it is a thing now where communities that had never had those conversations, they’re all of a sudden saying, “Maybe we should build our own network.”
ZH: What are some of the challenges that you see with that particular idea of building your own network? Because I know I’ve seen particularly, I’m from the South and we have a couple of cities. I think Chattanooga created their own network and has been particularly successful in providing affordable Internet. What are some of the challenges you see to that sort of solution?
AS: One of the challenges is making sure that not only is there a competitive price point, to make sure that it is in fact lowering other prices of other providers to make it more affordable so that when we think about affordability, we think of market-rate affordability and then a subsidized service. A community-owned solution should also be thinking about market-rate affordability and a subsidized solution because certain populations, their incomes are so low that market rate’s still not going to be acceptable for them. I don’t know if I’d call it a “challenge,” but I call it “Let’s raise awareness.” If you’re going to build your own network, make sure you’re not just building it for those who have funds to afford the service. Is it a public network that only serves certain incomes, right? We should really try to get at the issue of affordability also with these public networks.
ZH: Right, yeah. It ties back into it ends up becoming a short-term BAND-AID solution if it’s not really helping the people that don’t already have the ability to pay for it and access it. It has me thinking about some of the longterm new technologies that have been implemented. I know TV white space technology is something that I saw quite a bit. You mentioned earlier about satellite internet and maybe how that may not be as reliable as some people think, but there is quite a bit of, I guess, focus on, “Oh, well, Elon Musk is sending out thousands of satellites and this is going to provide internet for the future.” What do you see as being some of the most promising long-term solutions in helping to bridge the digital divide?
AS: I guess I’ve been around long enough that I’ve seen lots of, “Oh, we’re going to do Internet through electricity lines,” “Oh, we’re going to float balloons over every…” Okay, have any of those panned out? No. I’m not even seeing 5G for real yet. It’s still being talked about. Until any of those solutions are real, we have to go with that which we know works and we have to future-proof it as much as we can. That really is fiber. In areas where the federal government has paid to upgrade networks, I’m kind of curious, haven’t done the research. Should we go back and look at how much was spent? If we had just invested enough for fiber from the beginning, would we still be spending that much money? Are we relegating some rural areas to a lesser class service that will not allow them to, say, bring in large warehouse retail locations, right, bring in server farms, the things that tend to pull in more tax revenues and such. If we’re not setting it up for success for the long term, we’re just covering a short-term need, was that the best use of federal money, of government, any kind of subsidized, local/state/federal? In fact, it’s fascinating that there are some places that did lay fiber, but they didn’t know what they were doing it for, like somebody in that community thought it was a good idea 20 years ago and then those communities, time progresses and somebody realizes it’s there and they’re like, “Oh, my god, there’s gold in the ground.” That’s what’s happened in multiple communities and I find that to be completely fascinating. I’m sure whoever’s idea it was 20 years ago, a bunch of people made fun of them.
ZH: Yeah, but now we’re kicking ourselves for not doing it more, huh?
AS: That’s right. That’s right.
ZH: Thank you, Angela, for taking the time. I guess I have one more question for you, but it’s generally just wrapping up. I’m just curious what your call to action would be in moving forward and trying to bridge the digital divide, what you see as the most important things in making sure that these BAND-AID fixes aren’t the only focus, that we make sure that there is a long-term solution in mind and what we can best do to try and move towards that solution?
AS: The solutions right now that we’re seeing are all local. The innovation is local, the community is coming together to make sure that people have computers. There are communities paying for their first Internet, right? There are communities solving this right now as much as they can, but they’re doing it in a way where they don’t have support from the federal government, so the next step we need is to support those local efforts. That is making sure we understand what’s going on in those localities, how it is that they’re solving these problems, what they need from us. It’s not ignoring any of the barriers, right? It is the home connectivity, not a parking lot, the right device, tablet or computer, not a mobile phone, and it is that digital literacy and tech support. We can’t leave one of those three out. We have to make sure we’re doing all of them.
ZH: Great. Well, thank you so much, Angela, again, for taking the time to speak with me. I know I went a lot just in our conversation and I’m sure a lot of people that will listen to the podcast will learn a lot, too, but I’ll be sure to share that with you and the issue brief that we have coming out next week. Thank you so much.
AS: Yeah. I’m excited that you’re doing it. Thank you, Zane. It’s very much appreciated. Have a good weekend.
ZH: You too. Bye.
In the wake of America’s lethal strike on Iranian general Qassem Soleimani, the debate over presidential war powers is once again front and center. This week, the U.S. House of Representatives passed a resolution, largely along party lines, to curb President Trump’s authority to order military strikes on Iran.
Below, The New Center offers a primer on the legal underpinnings of the executive’s use of military force.
The War Powers Act
The War Powers Act of 1973 is a federal law intended to check the U.S. president’s power to commit the United States to an armed conflict without the consent of Congress. The law states that the president can send U.S. Armed Forces into action abroad only by declaration of war by Congress, “statutory authorization,” or in case of “a national emergency created by attack upon the United States, its territories or possessions, or its armed forces.”
The War Powers Act requires the president to notify Congress within 48 hours of committing armed forces to military action and forbids armed forces from remaining for more than 60 days, with a further 30-day withdrawal period, without congressional authorization for the use of military force (AUMF) or a declaration of war by the United States.
A major issue with the War Powers Act is its vague definition of war or conflict, which is characterized as “the introduction of U.S. Armed Forces” in the legislation. This definition requires that “there exists an imminent threat that such [U.S. armed] forces will become engaged, in hostilities.” This vague definition has allowed for a loose interpretation of the law when it comes to the deployment of drone strikes, strategic bombing, and other uses of military force that do not immediately risk further hostile engagement between U.S. troops and foreign military forces.
U.S. military forces had been involved in intense conflict in both the Korean and Vietnam wars without there being an official declaration of war. During this time, members of Congress became concerned with the erosion of congressional authority to decide when the United States should become involved in a war. The War Powers Clause of the U.S. Constitution gives Congress the power to declare war, but no armed conflict since World War II has received a formal declaration of war. Congress was eventually spurred to action when President Nixon was found to have conducted secret bombings of Cambodia during the Vietnam War without notifying Congress.
The War Powers Act was passed by both the House of Representatives and Senate but was then vetoed by President Richard Nixon. By a two-thirds vote in each chamber, Congress overrode the veto and enacted the joint resolution into law on November 7, 1973.
President Ronald Reagan and President George H.W. Bush would later begrudgingly recognize the congressional authority provided by the War Powers Act, despite their shared belief that the president should hold complete authority over the use of armed forces. President Reagan reached a compromise resolution with Congress for the continued deployment of U.S. Marines in Lebanon for an additional 18 months during the Lebanese Civil War in 1983. President George H.W. Bush reached a compromise resolution with Congress in the leadup to the deployment of armed forces in the Gulf War in 1991. While President Reagan and President H.W. Bush respected the War Powers Act, the constitutionality of the law would be called into question by following presidential administrations.
Kosovo and Libya Case Study
In 1999, during Operation Noble Anvil, President Bill Clinton approved of a joint operation with NATO to conduct a bombing campaign in Kosovo. This bombing campaign continued for more than two weeks after the 60-day deadline had passed for authorization under the War Powers Resolution. Having obtained some funding for the bombing campaign from an emergency appropriations bill passed by Congress, the Clinton administration argued that they had implicit authorization to continue the bombing campaign. President Clinton’s actions in the bombing campaign of Kosovo were eventually challenged in D.C.’s District Court by members of Congress for violating the War Powers Act, but the court found that Congress lacked standing to sue the President and instead must rely on their legislative authority. Additionally, since air forces were withdrawn from the region 12 days prior to the 90-day required deadline, the Clinton administration was found to have complied with the War Powers Act.
During Operation Odyssey Dawn, the Obama administration conducted military operations in Libya in 2011 past the 60-day statutory limit on unauthorized military actions. Similar to the bombing campaign in Kosovo, Obama administration made legal arguments justifying and authorizing continued military operations in Libya without Congressional approval, stating that there was no “hostility” in Libya and that the military operations were limited in scope rather than targeting regime change.
War Powers Act in Yemen and Iran
More recently, in an effort to invoke the War Powers Act to end U.S. support of the ongoing Saudi-led military intervention in Yemen, Senator Bernie Sanders introduced a bill in 2018 which was approved in both houses of Congress. (Approved in the Senate by a vote of 54 to 46 and in the House of Representatives by a vote of 247-175) However, President Trump vetoed the bill on April 16, 2019, and the Senate failed to reach a two-thirds majority necessary to override the veto.
On January 3, 2020, missiles shot from an American drone killed Qassem Soleimani, an Iranian Major General of the Islamic Revolutionary Guard Corps (IRGC), a branch of the Iranian armed forces, and Abu Mahdi al-Muhandis, an Iraqi military commander of the Kataib Hezbollah, an Iraqi Shia paramilitary group supported by Iran. President Trump met the 48-hour deadline to notify Congress of the drone strike, but the document is classified and no version has yet been released to the public.
The Trump administration has argued that the drone strike was justified because it both thwarted an imminent attack and was carried out in accordance with the Authorization for Use of Military Force Against Terrorists (2001 AUMF), a resolution passed in 2001 that gave the President the authority to use military force against those determined to have planned, authorized, committed, or aided the 9/11 attacks. Since the IRGC was designated a terrorist organization by the Trump administration in 2019, and as argued by Vice President Mike Pence, Iran helped transport some of the al Qaeda hijackers responsible for the 9/11 terrorist attacks, the Trump administration believes the 2001 AUMF justifies the strike.
Democrats in the House of Representatives disagree, as evidenced by their vote to curb Trump’s war making powers this week. But the House resolution is not binding and is unlikely to pass in the Senate.
In the days since the strike on Solemani, members of Congress on both sides of the aisle have also been pressing the Trump administration for more evidence that Soleimani was indeed planning “imminent” attacks.
Therefore, the debate over presidential war powers won’t be resolved anytime soon and could emerge as a key issue in the 2020 presidential campaign.
Last Wednesday, The New York Times reported that Facebook expects a $3-5 billion fine from the Federal Trade Commission (FTC) for violations of a 2011 consent agreement that required Facebook to obtain consent from users before it shared their data with third parties. The FTC likely views the Cambridge Analytica scandal as a breach of the consent agreement. Facebook also likely violated its consent agreement when it gave certain partner companies special access to user data without obtaining explicit consent, as detailed by another New York Times investigation last December.
This would represent the most significant punitive action the FTC has ever taken against a tech company. It is an encouraging sign that the FTC is willing to hold huge companies like Facebook accountable for their business practices, something it’s been criticized for failing to do in the past.
But given the fact that Facebook had almost $56 billion in revenue in 2018 alone, a $5 billion fine for ethically questionable but highly lucrative data sharing arrangements could simply be viewed as the cost of doing business, rather than as an effective deterrent against such activity.
Fines also cannot address many of the structural challenges of regulating data privacy. As of now, the U.S. lacks a concrete definition of what a data privacy violation even is. Per FTC v. Wyndham Worldwide Corporation, the FTC is allowed to regulate improper data security as an unfair business practice. However, the burden of proof for an unfair business practice is very high; if tech companies begin challenging and overturning FTC rulings in court, it could set a legal precedent that protects some of the questionable privacy practices we see now.
Rather than relying on a case-by-case system of adjudication, the U.S. needs a national data privacy law that outlines specific rights that users have over their data and imposes firm requirements of transparency and accountability from companies that collect, share, and process user data. Such a bill would not only facilitate the FTC’s regulatory efforts, but it would also simplify requirements for private companies by enacting one single standard to supplant the complicated, state-by-state legal landscape they currently operate in.
Evan Burke is a former policy analyst for The New Center, which aims to establish the intellectual basis for a viable political center in today’s America.
On March 11th, President Trump released his 2020 budget proposal. This first step in the budget process lays out the basic framework for government spending, which can then be adjusted or amended by Congress. However, as we explain below, President Trump’s budget proposal – like that of most recent presidents – is essentially a political document. It’s more of a wish list and framework for his 2020 campaign than it is a blueprint for how and where Washington will spend taxpayer dollars in the year ahead.
House Speaker Nancy Pelosi made it clear that the budget proposal was dead on arrival by saying, “The cruel and shortsighted cuts in President Trump’s budget request are a roadmap to a sicker, weaker America. House Democrats will reject this toxic, destructive budget request which would hollow out our national strength and fail to meet the needs of the American people.”
Changes in funding that are unpopular among Democrats include:
- Cutting $845 billion over the next decade from Medicare and $241 billion from Medicaid
- Steep cuts in agency spending including reductions of $8.8 billion from the Education Department, $12.4 billion from the Department of Health and Human Services, $8.6 billion from the Department of Housing and Urban Development, and $12.5 billion from the State Department and USAID.
Here, the New Center outlines President Trump’s budget request and explains why it’s going nowhere—fast.
THE TRUMP BUDGET
President Trump’s 2020 budget broadly aims to “end wasteful spending” and “expand economic growth and opportunity.” The $4.75 trillion budget, the largest in federal history, simultaneously makes sharp cuts to domestic programs and relies on previous tax cuts to spur growth.
The president’s budget request emphasizes ten pillars of reform that are consistent with his administration’s priorities since taking office:
Preserving Peace Through Strength
- Increase the Defense budget by more than $33 billion to a total of $718.3 billion
- Increase the size of the Armed Forces
- Give a 3.1% pay-raise to service members
- Modernize the American nuclear arsenal, create a U.S. Space Force, invest in new weapons technologies
Building the Wall
- Provide an additional $8.6 billion for construction of a wall on the southern border with Mexico
- Increase the number of ICE officers and border patrol agents
- Increase the number of immigration jails and detention beds
- Provide $100 billion worth of incentive grants to encourage infrastructure investment
- $50 billion for investment in rural infrastructure with a focus on broadband internet service
- Streamline permits by eliminating redundant agency reviews
Supporting American Working Families
- Use $750 million for paid parental leave program
- Use $1 billion to create a fund to help underserved populations and encourage investment in child care
Protecting Our Veterans
- Increase the Department of Veterans Affairs budget by $6.8 billion to a total of $97 billion
- Increase spending on medical care for veterans and make private doctors easier for veterans to access
- Add mental health services for suicide prevention
- Expand medical services to female veterans
Combatting Opioid Addiction
- Provide $5 billion to the Department of Health and Human Services over five years to increase access to overdose reversal drugs, treatment, and recovery support services for opioid addicts
- Expand coverage under Medicaid of medication-assisted treatment options
- Provide $2.2 billion to the DEA to enhance efforts targeting illicit drug trafficking
Fighting High Medical Drug Prices
- Create a Medicaid demonstration authority to negotiate drug prices directly with manufacturers
- Reduce costs for seniors with reform of Medicare’s Part D drug benefit
- Incentivize more competition among generic drug manufacturers with FDA changes, and update study analyzing drug prices paid in other developed countries
Moving from Welfare to Work
- Create mandatory work requirements for welfare assistance
- Cut $220 billion from the Supplemental Nutrition Assistance Program and use food box delivery instead of cash benefits
- Give states ability to propose Welfare to Work projects to receive funding
More Pathways to Affordable Education and Well-Paying Jobs
- Promote formal apprenticeships with an evidence-based system to “earn while they learn”
- Investments in STEM education in K-12 schools
- Support career and technical education in high schools and postsecondary institutions
Promoting School Choice
- Give parents the choice of public, private, charter, magnet, religious, or home school options for their children
THE BROKEN BUDGET PROCESS
How is the federal government actually meant to create a budget?
- The president submits a budget request to Congress
- The House and Senate pass budget resolutions that are supposed to set overall spending levels for different parts of the government
- House and Senate Appropriations subcommittees “markup” the appropriations bills that actually authorize the spending for various government agencies
- The House and Senate vote on appropriations bills and reconcile differences
- The president signs each appropriations bill and the budget becomes law
This is how it is supposed to work. But it almost never does.
1996 was the last time that Congress managed to complete all of its spending bills before the government’s new fiscal year started on October 1st. The budget process has become a vehicle for partisan gamesmanship where members of Congress can host their political disagreements.
Although the president’s budget request is meant to inform the House and Senate budget resolutions, it does not have to. Presidential and congressional budget proposals have often conflicted in recent years. House Democrats may not even bother to issue a budget resolution in 2019.
If the budget process is not completed before the end of the fiscal year – and it almost certainly won’t be – Congress may pass a continuing resolution so that agencies continue to receive funding until the full budget is in place. A continuing resolution provides temporary funding for federal agencies until the new budgeting bills become law. These resolutions are short-term fixes that keep the government open, but allow Congress to punt on the larger budget debate until another day. Committees often draft continuing resolutions by slightly increasing a program or agency’s funding from the previous year.
If Congress does not pass a budget or continuing resolution in time, a government shutdown ensues.
Zane Heflin is a policy analyst for The New Center, which aims to establish the intellectual basis for a viable political center in today’s America.