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Federal Document Clearing House
Congressional Testimony
May 16, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2387 words
HEADLINE:
TESTIMONY May 16, 2000 VICTOR GOMPERTS VICE PRESIDENT BELL ATLANTIC CORPORATION
HOUSE WAYS AND MEANS OVERSIGHT INTERNET TAXES
BODY:
May 16, 2000 Statement Of Victor Gomperts
Vice President - Taxes Bell Atlantic Corporation Before the
Subcommittee on Oversight Ways and Means Committee United States House of
Representatives Good afternoon, Mr. Chairman, Mr. Coyne, and other distinguished
Members of the Subcommittee. My name is Victor Gomperts. I am the Vice
President-Taxes for Bell Atlantic Corporation. Thank you for
inviting me to testify before you this afternoon. Although I speak only on
behalf of Bell Atlantic today, there is a broad coalition of interests (of which
Bell Atlantic is a member) that I believe would agree with my comments. This
coalition includes: consumers, computer and high technology associations, small
businesses, communications providers, unions, and groups representing minority
and ethnic interests and is working actively with Messrs. Portman and Matsui to
pass H.R. 3916. Eleven years ago, I testified before the Ml House Ways and Means
Committee on behalf of the United States Telephone Association
to urge that the 3% Federal excise tax on telecommunications
services not be extended permanently. Despite our efforts at that time, the
tax was made permanent the year after I testified as part of a
package of "deficit reduction7 tax increases. For all the
reasons I will discuss today, I am optimistic that this time the result will be
different. Over one hundred years have passed since a communications
excise tax was originally enacted in 1898 to help fund the
Spanish- American War. At that time it was considered a "luxury"
tax that applied to less than 2,000 access lines then in
existence. Over the years the tax on telecommunications has
ranged from 1% to 25% and has been labeled a "war" tax, a
"luxury" tax, and finally a "deficit reduction"
tax. It is the only significant federal excise
tax that is neither dedicated to a trust fund for a particular
governmental purpose, nor considered a tax on a product whose
consumption government wishes to discourage for public policy reasons (such as
tobacco or alcohol). Obviously, we can no longer justify the
tax for funding a war or for taxing a luxury. Moreover, if
deficits exist, they should be funded by general revenue taxes,
not special industry taxes. Therefore, I believe there is no
public policy reason to continue its imposition. In fact there are many good
reasons to repeal it as soon as possible. One of the principal reasons to repeal
this tax is that it is extremely regressive. Under one measure,
of tax fairness (the "ability to pay" principle),
tax burdens should be distributed among taxpayers in proportion
to their ability to pay. Unless a tax is intended to discourage
consumption, one might presume that for a tax to be "fair" it
should at least be proportional to income and not regressive in nature. A number
of scholarly works (including the 1987 Treasury Report, the 1990 Congressional
Budget Office Report, and a recent paper by George Washington University
Professor Joseph Cordes) demonstrate' that low-income Americans pay a higher
percentage of their income to the telecommunications excise tax
than do middle or upper-income individuals. Thus, this excise
tax falls disproportionately on the poor and is indeed regressive and
"unfair." Today, telecommunications is a necessity, one that the poor, the
elderly, and the infirm literally require as a lifeline to the world. To
continue to impose a flat-rate regressive consumption tax on
this segment of the economy is poor public policy. If the tax
were repealed, it would annually save consumers over $5 billion with the benefit
extending to 94% of American families. As the tax is
regressive, the proportional benefit to the poor would be greater than average.
A second way to measure fairness is to look at the benefits derived from the
tax. This "benefit" principle holds that the burdens of a
tax should be distributed according to the benefits that
taxpayers receive from the public goods and services those tax
revenues provide. This is the case with many excise taxes that
are used for trust funds for particular purposes, like highways or airports. But
the benefit principle does not apply to the 3% Federal excise
tax since the revenues simply go to fund general government services.
CONTETITIVE NEUTRA@LITY A third principle of tax fairness is
that taxes should apply equally to comparable transactions.
With regard to the telecommunications excise tax, there is a
great potential for disparities in treatment. New technologies and new providers
are dramatically increasing the potential for inconsistent application of this
tax. Today, there are thousands of new providers of
telecommunications services, like cable companies, satellite companies, and
Internet providers. There is the potential that comparable services provided to
customers using different technologies may not be subject to the excise
tax. For example, will the tax be applied equally to
telephony provided by telephone companies, cable companies, and
Internet providers? The result is that a traditional telecommunications provider
like Bell Atlantic may collect a discriminatory tax from our
customers that our competitors may not collect on comparable services. This puts
many companies at a competitive disadvantage. TECHNOLOGY AND G.ROWTH
Telecommunications has become one of the most dynamic sectors of the economy and
will continue to be so for the foreseeable future. No longer do consumers look
to their phone companies solely for basic telephone service.
Our customers now demand high speed Internet connections; Internet service; call
waiting; voicemail; long distance; wireless; wireless data; and many other
services. These high tech services are more price sensitive than basic
telephone service. Today's tax burden
(federal, state, and local combined) on the typical telephone
consumer averages almost 20% of their monthly bill axes are de and can be as
high as a third of their bill. T finitely a deterrent to the use of these
services, including the Internet. Repealing this 3% Federal tax
would be an important statement by Congress that taxes imposed
on engines of growth and technology like the Internet and telecommunications are
counterproductive. America is clearly the technology leader in the world, and
other markets are watching our transition from a heavily regulated utility
regime to a more competitive telecommunications industry. We need to set an
example to minimize taxation on technology rather than to allow stifling
taxes to continue. Every time we introduce innovative products,
this broad tax applies to our services. For example, wireless
technology, which was introduced in the middle and late eighties, is now a
significant part of the base for this tax. If Congress fails to
repeal this tax, the introduction of new technologies could be
adversely affected by the high rate of telecommunications
taxes. COMPLEXITY D ADMINISTRATION The telecommunications
excise tax is also complex and costly to administer. Over the
years we collected this tax, which is levied on our customers,
by adding an additional 3% to their phone bills. You might think this is an
extremely easy tax to administer that happens to bring in lots
of revenue. However, there are numerous exemptions that apply to certain classes
of customers and to various types of services that make it very difficult and
costly to administer. For example, the news media is exempt from the
tax, but only on long distance service used to collect or
disseminate the news. For many of the exemptions, the customer must file annual
certificates that must be retained by the telephone company and
made available to the IRS on audit. Obtaining, storing, and recovering these
documents is a significant burden. There are other administrative issues
associated with measuring the base for this tax. For example,
in some jurisdictions the tax will apply to local 91 1 fees,
while in others it does not. The tax applies to many state and
local taxes, but not to others. Applying all of these rules is
a complex undertaking, and if there is a discrepancy, we must deal with the IRS
or with irate customers. CONC.LUSION In the Subcommittee's announcement of
today's hearing, it stated that the focus of the hearing would be on matters
within the Ways and Means Committee's jurisdiction contained in the Advisory
Commission on Electronic Commerce (ACEC) report and related topics. The ACEC
recommended the repeal of the Federal excise tax. Your
Committee has clear jurisdiction over this tax and should
exercise that jurisdiction once and for all to eliminate it. I will be more than
happy to answer any questions you might like to ask me.
LOAD-DATE: May 23, 2000, Tuesday
