100-Year-Old 'Temporary' Phone Tax Still Not Disconnected

July 7, 2008 - 7:25 PM

(CNSNews.com) - When Teddy Roosevelt led his Rough Riders up San Juan Hill during the Spanish-American War in 1898, the charge was partly financed by a "temporary luxury tax" on some newfangled devices called telephones owned primarily by the wealthy, but today the Federal Excise Tax on telephone service unfairly targets the poor, say legislators on Capitol Hill calling for its repeal.

"This phone tax is outmoded," said Senate Finance Committee Chairman William Roth, (R-DE), who is sponsoring a bill to eliminate the three-percent federal tax on local telephone service.

"Once upon a time, it could have been argued that telephone service was a luxury item and that only the rich would be affected. As we all know, there is nothing further from the truth today," said Roth.

Both Roth and the bill's co-sponsor, Sen. John Breaux, (D-LA), point out that because the tax is a flat percentage of local telephone service, which is virtually a necessity in the 21st century, it is actually a regressive tax, i.e., one whose relative cost goes up as income goes down.

"It's time we ended more than 100 years of Americans paying this regressive and unnecessary tax on telephone service. Telephones are no longer luxuries that [only] the very wealthy can afford, but basic essential fixtures in nearly every American home," said Breaux.

A Tax with a Life of Its Own
The Federal Excise Tax (FET) on local telephone service, says Roth, is a classic example of a tax which no longer has any connection to its original purpose, but now feeds on its own momentum in a state of perpetual taxation.

After the short-lived Spanish-American war (six months), the tax was repealed only to be resurrected during World War I, repealed again, and then reinstated and made permanent to raise money for WW II. In the 1960's the Vietnam War halted any attempts to repeal the tax, and during the budget deficits of the 1970's calls for the end of the tax went unheeded.

Now, in peacetime, the three-percent FET on telephone service costs American taxpayers about $6 billion a year, and the money does not have to be spent on defense or even communications, but instead goes right into the discretionary federal budget, said Citizens for a Sound Economy Director of Technology Policy Eric Gustafson.

"It's absurd how government taxes are put in place, and then maintained forever and they grow their own constituencies," Gustafson told CNSNews.com. "This tax is a poster child on why you shouldn't do technology taxes. They just never go away."

Jim Martin, the director of 60 Plus, a conservative advocacy association for seniors, told CNSNews.com that the FET on telephone service has long outlived its usefulness and he would welcome its demise, but he said that, in Washington, taxes are sometimes easy to levy, but always difficult to repeal.

"During 38 years here in Washington, I've seen a lot of taxes come, but I haven't seen a lot go. This is one tax whose time to go has come," said Martin.

National Black Chamber of Commerce Executive Director Harry Alford told CNSNews.com that he also sees the telephone tax as regressive and more burdensome on lower, and middle income Americans and supports its repeal.

"The government needs to find ways to cut costs, instead of finding ways to add taxes," said Alford.