The Wall Street Journal gives credit to Sen. McCain for
trying to protect consumers from excessive, confusing, and
duplicate taxes on wireless communications, aka mobile phone
service. While Mr. McCain must share the credit with Reps. Zoe
Lofgren and Chris Cannon, he was indeed the first to press for a
halt in the states’ shameless milking of your cell phone bill. His
Cell Phone Tax Moratorium Act, introduced in January, proposes a
three-year moratorium on new cell phone taxes that unduly burden
wireless consumers, compared with other communications
services.
If anything, this initiative (clearly modeled on the Internet
Tax Moratorium, which has done a pretty good job of restraining
taxes on Internet service per se) is long overdue. As the Heartland
Institute points out, wireless taxes rose four times faster than
other taxes (aimed at goods and services) between 2003 and 2007.
Sen. McCain cites the figure of 17 percent as the average
state-local combined tax burden on wireless. The average sales tax,
by contrast, runs under 7 percent.
There is nothing new about government chasing the hottest growth
industries as a revenue source. Politicians should realize, though,
that growth in any industry automatically generates more revenue
without special targeted taxes and fees. Higher company profits, a
bigger wage base, and more customers means more money rolls in from
income, sales, and use taxes. Hitting up the winners in economic
competition just increases the risk the party will stop sooner
rather than later: if you want to keep benefiting from the robust
growth wireless generates, don’t cut off the industry’s oxygen
supply.
Aside from growth (and revenues) per se, it should be obvious to
everyone that wireless, wired, and broadband services are
converging at an ever-faster clip. Wireless is competing in music,
video, web-surfing, and gaming, to name just a few. If there’s a
more sensible public policy than making the tax-and-regulatory
playing field as level as possible among communications providers,
no one has come up with it yet.
Yes, administering federal controls on state and local wireless
taxes is tricky, probably trickier than the Internet Tax
Moratorium, which has been pretty successful. Still, even if there
are a few loopholes and exceptions here and there, it’s important
to send the message that piling on endless wireless taxes and fees
won’t cut it anymore.
YET THERE IS AN IMPORTANT piece missing from this puzzle. When the
IRS (under court order) stopped assessing federal telephone tax on
wireless (in 2006 — you should have applied for a refund on your
tax return), everyone expected the wireless tax burden would go
down. Well, it did, ever so slightly, but most of the difference
was made up (in some cases, more than made up) by the noxious
combination of those state and local tax hikes on wireless, plus
the steady rise of fees imposed for the Universal Service Fund
(USF).
The misnamed USF is supposed to subsidize communications
services to remote and underserved areas. Instead, it’s a slush
fund for state and local governments. Worse yet, its fees (let’s
call them taxes, shall we?) are imposed not by Congress but by the
FCC. Yes, Congress passed the law mandating that, but it’s still
classic taxation-without-representation.
Until McCain and Co. tackle the USF (and the FCC), we shouldn’t
give them too many bragging rights about defending us from
uncontrolled cell phone taxes. Whatever legitimate mission the USF
might have (e.g. subsidizing universal broadband and wireless
access to the Internet) should be decided by Congress and supported
by taxes legislated the old-fashioned way: with hearings, reports,
debates, and full accountability to the taxpayer. Take the FCC out
of the tax-hiking business altogether, and let the public know what
is going on.
Let’s hear it for the wireless tax moratorium, then — but let’s
not forget it is only half the battle.
