05-20-2000

TAXES: Telephone Tax Finally Gets Cut Off

Death and taxes may be inevitable, but the death of a tax can be a very
slow, and an uncertain, process. After decades of tinkering, the House
Ways and Means Committee voted on May 17 to end a 102-year-old tax on
telephone service that originally was designed as a temporary levy to
finance the Spanish-American War.


Congress imposed the excise tax on local and long-distance telephone
services as a short-term luxury tax in 1898, when only about 1,300
American families had the newfangled device. But like many
"temporary" programs in Washington, the excise tax
survived.


The phone tax rose to 10 percent in 1965 to help pay for the Vietnam War.
It had subsequent incarnations as a 1 percent or 3 percent surcharge, and
was due to expire in 1985. But Congress extended it and then made it
permanent in 1990.


Sentiment has been building to repeal the tax, but the Ways and Means
Committee decided to hold on to the revenues it generated for just a bit
longer.


A bill (H.R. 3916) introduced by Rep. Rob Portman, R-Ohio, and Rep. Robert
T. Matsui, D-Calif., would have wiped out the tax 90 days after enactment.
The committee, however, decided to adopt a substitute plan offered by
Chairman Bill Archer, R-Texas, to phase out the tax in about two
years.


The tax rate would be pegged at 2 percent 30 days after enactment; on Oct.
1, 2001, it would drop to 1 percent and then be repealed altogether on
Oct. 1, 2002.


A committee aide said that the phaseout would save the Treasury some
money: Federal revenues would be reduced by $19.8 billion, rather than the
$24 billion under the original legislation.


Michael Posner

National Journal