On
Wednesday, Scott Mackey and Joseph Henchman of the Tax Foundation released a
report entitled “Wireless
Taxation in the United States 2014.” Some of the key findings include:
·
Americans pay an average
of 17.05 percent in combined federal, state, and local tax and fees on wireless
service. This is comprised of a 5.82 percent federal rate and an average 11.23
percent state-local tax rate.
·
The five states with the
highest state-local rates are: Washington State (18.6 percent), Nebraska (18.48
percent), New York (17.74 percent), Florida (16.55 percent), and Illinois
(15.81 percent).
·
The five states with the
lowest state-local rates are: Oregon (1.76 percent), Nevada (1.86 percent),
Idaho (2.62 percent), Montana (6.00 percent), and West Virginia (6.15 percent).
·
Four cities—Chicago,
Baltimore, Omaha, and New York City—have effective tax rates in excess of 25
percent of the customer bill.
·
The average rates of
taxes and fees on wireless telephone services are more than two times higher
than the average sales tax rates that apply to most other taxable goods and
services.
More importantly, there are some key implications of high taxes on wireless
service. When a tax is imposed on any good or service, it raises the price,
resulting in a decrease in the quantity demanded from consumers. In a previous blog,
I mentioned that taxes are generally regressive because the marginal value of a
dollar is much higher to a poor person than to a rich person. Well, according
to surveys by the Centers for Disease Control, over 56 percent of all poor
adults had only wireless service as
of December 2013. Therefore, high tax rates on wireless service are very
regressive because they impose a disproportionate burden on low-income
consumers.
I have also written
about how the Senate should pass the Internet Tax Freedom Forever Act, which
would permanently ban state and local taxes on Internet access (here
and here).
This should be done as soon as Congress returns after the elections. Mackey and
Henchman’s report mentions that without this legislation state and local taxes “could
add significantly to the tax burden on wireless consumers.” Many Americans still remain offline, either
because they cannot afford Internet access or have chosen not to connect, but
taxes on Internet access would lower the incentive for these individuals to get
online.