Wireless Tax Hikes Mute Price Cuts - Tax Foundation Report

This week the Tax Foundation released its annual report for 2021 regarding the imposition of various taxes, fees, and surcharges on top of the charges for basic wireless services. The report highlights how regressive, record-high rates prevent low-income Americans from fully benefitting from price cuts by mobile carriers. These regressive fees almost certainly widen the digital divide, despite the consensus from policymakers that closing it is a top priority.

The overall tax rate customers paid on wireless in 2021 increased to a record high 24.96%, another year-over-year hike. Higher Universal Service Fund (USF) rates fueled the spike, though some states and localities hiked various sales taxes, 911 fees, or wireless surcharges. In total, governments collected $11.3 billion, about half for USF and half for state/local consumption taxes. Thanks to record high fees, a family of four paying $100 per month for four wireless voice lines paid $300 in fees this year. The same family paid $270 in 2020, amounting to an 11% year-over-year increase.

Taxes are increasing despite cuts in wireless service prices absent the added taxes, fees, and surcharges. The average line price dropped to $35.31 in 2021, a 15% decline from $41.50 in 2017. But consumers aren’t fully benefitting from the price cuts because the hikes in the various taxes, fees, and surcharges partly offset them.

And the burden of fee hikes falls heaviest on low-income Americans. Wireless taxes are regressive, since they are almost all flat rates or per-line fees. Plus, 74% of low-income adults subscribe to wireless voice only, compared to 65% of all adults. So every hike in wireless fees shifts more burden to low-income Americans.

Offsetting price cuts for wireless services with hikes in taxes, fees, and surcharges is no way to close the digital divide. Instead, governments should look to broader revenue sources that let consumers benefit from lower-prices. Lower prices would encourage more wireless adoption for Americans most in need. Then, closing the digital divide would be closer to a priority than lip service.