Thursday, March 16, 2000
Bill aims at war-era phone tax
BY DERRICK DePLEDGE
Enquirer Washington Bureau
WASHINGTON — A Cincinnati congressman wants to get rid of a relic of the Spanish-American War that survives on your telephone bill.
Intent on breaking Spanish colonialism in 1898, Congress approved what at the time was a luxury tax on the telephone to raise money for the conflict. But the levy has lingered in one shape or another for most of the past 102 years, long after the United States crushed the Spanish fleet and secured its power in the Caribbean and Pacific.
Today's 3 percent federal excise tax applies to local, long-distance and most monthly service charges, or about $3.21 on a typical Cincinnati Bell phone bill. The obscure tax brings in more than $5.5 billion a year to the treasury.
“It's really just a revenue grab,” said Rep. Rob Portman, R-Terrace Park. “It was a luxury back then when very few people had a telephone. It's hard to justify now.”
Mr. Portman, along with Rep. Robert Matsui, D-Calif., will ask lawmakers today to add a repeal of the phone tax to whatever tax package Congress eventually considers this year. As others have discovered, though, the tax usually outlives its detractors.
Congress actually repealed the tax in 1902, 1916 and 1924,
according to the Joint Committee on Taxation, only to revive it as the telephone became an essential tool of modern communication. Through the years, the tax reached as high as 25 percent and was scheduled to expire more than a half-dozen times before lawmakers made it permanent a decade ago.
Excise taxes have provided the federal government with deep pools of revenue throughout its history. The original tax on imported alcohol, for instance, was used to retire debts from the Revolutionary War.
But most of the existing excise taxes are collected to pay for specific projects or to balance the social costs of certain behavior. Federal gasoline taxes raise money for road and highway improvements. Taxes on alcohol and tobacco products fund law enforcement and health-education programs.
The U.S. Department of the Treasury, in a 1987 report to Congress, found that there was no policy rationale for preserving the phone tax.
“The tax is not a "user fee' for any service provided by the government,” the report argued, “nor is it a tax designed to discourage consumption.”
A stunning evolution in telecommunications — from cellular telephones and pagers to the Internet — has made the tax a lucrative source of federal income.
“This is like free money for the government,” said Mark Mullet, an assistant vice president at Bell Atlantic. “Every time we innovate, it gets taxed. It just gets more insidious.”
Consumers, Mr. Mullet thinks, probably would spend more money on advanced features like call waiting or caller ID if the phone tax were abolished. In Greater Cincinnati, an average monthly phone bill includes about 38 cents in state and local taxes, 48 cents in surcharges and 2 cents for local schools. The Federal Communications Commission also charges a separate $3.50 monthly fee to access the telephone network.
Mr. Portman said ending the phone tax might have more appeal to lawmakers than other, costlier, tax breaks now under review. House Republicans are proposing $150 billion in tax relief over the next five years, a figure the White House is almost certain to reject as a threat to a balanced budget. But some sort of tax cut is likely in this election year, so the question is whether Congress will again agree to part with what one veteran congressional aide describes as “easy money.”
“In an era of surpluses, we do have the luxury of taking a careful look at our tax code and determining which of the many federal taxes might be appropriate for repeal or relief,” Mr. Portman said. “This tax hits everybody.”
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