Tuesday, March 27, 2012

Overburdening Wireless With by Overlapping Taxes

A study released in January by scholars at the Mercatus Center focuses on the high levels of taxation that wireless services and wireless consumers are faced with today. We've blogged about this unfortunate situation in prior posts.

In their study, "Wireless Taxes and Fees: A Tragedy of the Anticommons," Matthew Mitchell and Thomas Stratmann point out that combined federal, state and local taxes on wireless are about twice as high as the average retail sales tax. As the title suggests, the authors persuasively contend that wireless tax policy suffers from a "tragedy of the anticommons." That is, too many governments have the ability to tax wireless services, creating high levels of taxation for services for which consumers show a high degree of price sensitivity. In the authors' words:

When numerous interests are allowed to tax a single base, each does so without regard to the effect of its tax on the others. The problem can lead to over-taxation of the resource and to underutilization of the good or service being taxed. The problem is exacerbated when numerous levels of government have access to the same tax base.

The study offers another reminder about the need for tax reforms at the federal and state levels. For instance, FCC reforms of USF contributions are necessary to reduce the surcharge (that is effectively a tax) imposed on wireless consumers' monthly bills. Meanwhile, states need to better coordinate and streamline the multiple taxes assessed by tax jurisdictions within their borders and to bring overall tax rates on wireless services into line with general sales tax rates. States also need to ensure that so-called fees imposed on wireless services are not imposed for extraneous governmental purposes.