Sunday, March 13, 2011

Taxes Worthy of a Tea Party – Part II

In a February 10 piece, "A Tax Worthy of a Tea Party," I said: "When consumers are forced to pay a 15.5% tax on a service the government continually describes as vital in order to support a subsidy regime the government admits is 'wasteful and inefficient,' you would think there would be calls for a Tea Party – whether of the 1773 Boston variety or the 2010 nationwide variety."

There I was speaking of the 15.5% surcharge imposed on all long distance calls to support the various Universal Service Fund ("USF") subsidies.

A recent special report by Scott Mackey published in State Tax Notes documents that, including the federally-imposed USF tax, wireless users now pay a combined federal, state, and local tax rate of 16.3%, up from 15.2% in 2007. (Throughout, as shorthand, I use "tax" to include charges that have the same economic effect as taxes, whether the governments denominate them "fees" or "surcharges" or the like.) The average U.S. wireless subscriber pays approximately $7.84 in taxes on his or her monthly bill.

Considered in isolation, the nationwide average 16.3% tax rate imposed on wireless services is startling – and disturbing – enough.

But considered in relation to the nationwide average tax rate of 7.4% imposed on other general goods and services, the 16.3% tax rate imposed on wireless services –- more than double that on other general goods and services -- is even more startling and disturbing.

In light of the interest in supporting more widespread use of wireless smartphones as part of a national strategy to make broadband services more accessible, especially to lower-income persons, the discriminatory tax treatment of wireless services makes no sense from a public policy perspective. The discriminatory treatment certainly discourages use of wireless services vis-à-vis other goods and services.

You might think that, along with the Tea Party I suggested to protest the federal USF tax, the excessive tax treatment of wireless services by state and local governments would be worthy of a Tea Party too.

But at least some relief from further state and local government tax escalation may be in sight. Representatives Zoe Lofgren and Trent Franks, and Senators Ron Wyden and Olympia Snowe, have introduced the "Wireless Tax Fairness Act of 2011." The bill would impose a five-year moratorium on any new discriminatory tax on wireless services. A discriminatory tax is defined as one that is not generally imposed on other goods or services, or one generally imposed at a lower rate.

While there should a sizeable reduction in the current federal USF charge, and a reduction in existing state and local government wireless taxes, the moratorium proposed by the "Wireless Tax Fairness Act" is certainly a worthy and important start to achieving such needed tax relief. The fact that the bill is a bipartisan effort with 140 co-sponsors is a positive sign.

With the economy still fragile, and with a governmental interest in encouraging more widespread broadband use –- or at least not affirmatively discouraging such use by discriminatory tax treatment -– speedy passage of the Wireless Tax Fairness Act makes sense as both sound tax policy and sound communications policy.