Portman, who authored the bill along with Congressman Robert Matsui (D-California), said:

The federal telephone excise tax was first imposed as a temporary luxury tax in 1898 when Congress needed funds to fight the Spanish American War.  It turns out the Spanish were a more formidable adversary than we thought.  Although it lacks a credible rationale, the 102-year-old “temporary” tax survives.  It’s a classic example of how -- once imposed -- taxes never seem to die in Washington. 

Whether it was used to help fund wars or simply to put more money in the federal coffers, public policymakers have always figured out a way to keep this cash cow around.  Now, with our nation at peace and our budget in surplus, those excuses are no longer valid.  In addition to it having outlived its original purpose, the tax is highly regressive.  It is more burdensome to low-income families and senior citizens, who spend a higher portion of their income on this tax than higher-income families  The federal excise tax also runs counter to efforts to keep the Internet free from taxation.  As Americans increasingly dedicate phone lines for Internet access, phone taxes become, in effect, Internet taxes. 

For all these reasons, we are marking up bipartisan legislation today to repeal the 3% federal excise tax -- a tax that costs consumers and businesses more than $5 billion annually.  I hope my colleagues will join me in bringing an end to the last battle of the Spanish-American War – by eliminating the tax on talking.

Background
 

• Congress first enacted a telephone excise tax in order to help pay for the Spanish-American War in 1898.  At the time, this “temporary” tax amounted to a penny on long-distance phone calls costing more than 15 cents. Over the years, the federal phone tax has survived efforts to eliminate it or scale it back, and Congress made it a permanent 3% tax on telecommunications services in 1990.
• Of the 105.4 million households in America, 99.1 million (94%) have telephone service.  The Portman-Matsui telephone tax repeal would provide tax relief to every one of those households.  Additionally, because of the rapid pace of technological change, the difference between traditional telecommunications, the Internet and other technologies is increasingly unclear.  If the federal phone tax remains on the books, it would jeopardize recent efforts to keep the Internet free from taxation.