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ELLIS SCHERER AND JOE KANE|SEPTEMBER 2025 Congress should reform and refocus the Universal Service Fund. It spends too much money,prioritizes the wrong problems, and funds it all with a high, sector-specific tax rate. Congressshould reduce the overall size of the program and fund it with general revenue. KEY TAKEAWAYS Private and federal investment have closed the broadband deployment gap. As such, thegovernment should stop spending on obsolete, duplicative deployment programs. Congress and the FCC should eliminate the High-Cost fund once current fundingobligations are complete. The federal government should stop subsidizing companies’operating expenses. Instead, a narrower, Lifeline program should be the central USF program, providing a $30per month voucher to low-income households for the broadband service of their choice. Sector-specific USF fees are an ineffective contribution model. Consumers always bearmost of the burden of taxes even when they are technically levied on companies. Simply taxing more industries will recreate the current program’s flaws while introducingeven more market distortions and unfairness. With lower expenditures it will be easier to support USF. However, even then, Congressshould fund USF as much as possible through appropriations or some other method tospread the burden to all taxpayers. itif.org CONTENTS Key Takeaways................................................................................................................... 1Introduction....................................................................................................................... 3Distribution Reform ............................................................................................................ 3Broadband Deployment Success Calls for New Priorities ..................................................... 3Federal Deployment Subsidies Are Numerous, Disjointed, and Obsolete ............................... 3Eliminate the High-Cost Program ...................................................................................... 41. Programs to Sunset After Completion......................................................................... 42. Obsolete Cap-Ex Subsidies ....................................................................................... 53. Poor-Policy Op-Ex Subsidies ..................................................................................... 5The 5G Fund............................................................................................................... 7A New and Improved Distribution Model: Modernized Lifeline Should Be the Flagship ........... 8Contribution Reform ........................................................................................................... 9Sector-Specific Fees Are No Free Lunch; Consumers Will Pay for USF.................................. 9A Better Way: “All Taxpayers” Is the Broadest Possible Base............................................. 10UnderFCC v. Consumers’ Research, Congress Can Enable the FCC to CollectContributions From All Taxpayers.................................................................................... 11Legislation Is Necessary to Alter the Contribution Base ..................................................... 12Conclusion ...................................................................................................................... 12Endnotes......................................................................................................................... 13 INTRODUCTION The Universal Service Fund (USF), operated by the Federal Communications Commission (FCC)in conjunction with the Universal Service Administrative Company (USAC), has grown old,expensive, and ineffective. It is past time for Congress to shrink, modernize, and retool it toaddress today’s broadband ecosystem. While the Supreme Court recently upheld the legallegitimacy of USF’s funding mechanism, the need to reform the program persists.1 The goal of many USF programs has been to close the deployment gap in America.2But thanksto ongoing investment from private Internet service providers (ISPs), the Broadband Equity,Access, and Deployment (BEAD) program, and USF programs’ past success, the future of USFwill be in a country that has achieved universal broadband deployment.3 Therefore, the first step toward reform should be distribution changes to focus funding on theremaining, and more pressing, causes of the digital divide, particularly broadband affordability.While programs such as E-Rate and Rural Healthcare need to be scrutinized to ensure that theyare effective and targeted, this report focuses on the parts of USF that are most in need ofreform: sunsetting the High-Cost program and reforming and augmenting the Lifeline program.4 Once policymakers have determined updated spending priorities, they should also turn tocontribution reform to make USF sustainable without undue burdens on consumer