Take a Timeout On Unfair Cell Phone Taxes

Posted: May 19, 2008 3:40 PM
Take a Timeout On Unfair Cell Phone Taxes

It's no secret that these are uncertain economic times. With the cost of food and energy rising almost daily, one might expect politicians to work overtime to keep taxes on other consumer goods from adding to the cost of living. Unfortunately, some are contemplating doing just the opposite.

There's an opportunity to show concern for these issues with a little gadget we all know, love and depend on - the cell phone. More than 85 percent of Americans use some sort of wireless device. Almost everybody has one, and now every level of government is looking at your cell phone as a revenue stream. And they want a drink.

But wireless taxes are already a virtual flood. The typical wireless consumer pays a whopping 15 percent in taxes, fees and surcharges. This is more than double the average of taxes you pay on other goods and services - about 7 percent, according to economist Scott Mackey in the journal State Tax Notes.

In fact, from January 2003 to July 2007, the effective tax rate on wireless devices increased four times faster than the rate on other goods and services. According to the national consumer group MyWireless.org, wireless consumers now pay a total of about $21 billion annually. It's no surprise, then, that a recent poll taken by the group showed 84 percent of wireless consumers favored a break from these unfair new taxes on wireless use.

Just look at the litany of taxes and fees on your most recent cell phone bill. How did all those taxes get there? Cell phone taxes generate a lot of revenue quickly, and they are easy to slip by consumers until they suddenly appear on monthly wireless bills.

According to the CTIA - the Wireless Association, roughly 259 million Americans now use cell phones, and they send about 1.6 billion text messages per day. People of every race, age and economic status use cell phones. Hispanics and young adults lead the way with hand-held devices, with 84 percent of English-speaking Hispanics using cell phones, compared to 74 percent of white Americans, according to the Pew Internet and American Life Project.

Beyond the individual benefits of wireless, the wireless industry has become an increasingly important source of economic growth. In 2004, the wireless industry accounted for $92 billion of U.S. gross domestic product, and today it grows at about 15 percent. If those upward trends continue over the next five years, the wireless sector could become a bigger component of the U.S. economy than both the automobile and agricultural sectors combined.

Wireless today is also driving the deployment of high-speed broadband Internet connections: According to the Federal Communications Commission, 70 percent of the growth in high-speed lines between June 2006 and June 2007 was attributable to mobile wireless. That is a staggering number when you consider the rate at which many rural and underserved areas of our country are catching up technologically.

So the rapid growth of wireless, both as a consumer technology and an economic engine, seems to have made it an irresistible target for tax-hungry politicians. At latest count, 17 states - including the District of Columbia - levy wireless taxes and fees in excess of 15 percent. An unacceptable handful of these states are now imposing wireless taxes in excess of 20 percent. And those taxes rarely fund anything related to telecommunications. Instead, they often go to the general fund to try to balance budgets.

In many states and localities, cell phones now face a heavier tax burden than the so-called "sin products," such as cigarettes and alcohol. And wireless taxes are particularly unfair and regressive, hitting low-income people, fixed-budget families, minority communities and senior citizens the hardest.

Fortunately, Congress is considering bringing a sanity check to this out-of-control tax spiral. A bipartisan group of members of Congress led by Rep. Zoe Lofgren (D-Calif.) and Rep. Chris Cannon (R-Utah) have recently introduced H.R. 5793, the Cell Tax Fairness Act, which would provide a five-year timeout on all new discriminatory state and local wireless taxes. While this won't fix the current tax burden, it is a great start. And as a Democrat from tax-hungry California (on the top 10 list for worst wireless tax states), Rep. Lofgren should be commended for helping to lead the charge with Rep. Cannon, a "free market" conservative Republican.

According to Lofgren, the bill "does not take away any existing revenue for state and local governments, it simply calls for a period of tax stabilization that will help further innovation and access in the wireless world."

It is a bipartisan issue among those with economic sense. Out on the tense presidential campaign trail, Sen. John McCain (R-Ariz.) has called repeatedly for a ban on unfair new cell phone taxes.

Last year, this very same Congress extended the moratorium against discriminatory taxes on Internet access for seven years. Now it's time for Congress to stop tax hikes on wireless service, to protect millions of consumers and to promote continued innovation and economic growth.

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