Copyright 2000 The Chronicle Publishing Co.
The San
Francisco Chronicle
MARCH 27, 2000, MONDAY, FINAL EDITION
SECTION: NEWS; Pg. A1
LENGTH: 1232 words
HEADLINE:
Lawmakers Revisit 1898 Phone Tax;
Obscure law is said to inhibit
Internet use
BYLINE: Carolyn Lochhead, Chronicle
Washington Bureau
DATELINE: Washington
BODY:
The 1898 Spanish-American War lasted less
than eight months, but the tax created to finance it is still on everyone's
telephone bill.
Suddenly, with lawmakers fixated on bridging the digital
divide, banning taxes on the Internet, and winning re-election in November, the
obscure century-old federal "luxury tax" on telephone usage has emerged as a new
target in Washington.
The 3 percent telephone excise tax also made the
short list of items on which the Advisory Commission in Electronic Commerce
could agree, after the panel failed to decide, over the course of a year and a
half, whether states should collect sales taxes on Internet purchases.
Sacramento Democrat Robert Matsui, who sits on the House Ways and Means
tax-writing committee, introduced a repeal bill with 16 co-sponsors this month.
House Republicans Chris Cox of Newport Beach, who led the move for the current
moratorium on Internet taxes, and Louisiana's Billy Tauzin, chairman of the
Commerce subcommittee on telecommunications, are pushing for repeal as well.
The tax "has truly outlived its usefulness," Matsui said, noting that in
1900, only 1,376 people had telephones. "Today, telephones are not a luxury but
obviously a necessity, and it's obviously middle and low-income people who are
hit hardest. If we had to start fresh and do it over again, we certainly
wouldn't tax the use of telephones."
Telecommunications taxes are widely
viewed as one of the more bizarre perversities of the U.S. tax code. The rates
are just behind the "sin taxes" on alcohol and tobacco intended to discourage
consumption.
"Our policies toward telecommunications and tobacco should
be opposite one another," Cox said. "Presumably we wish to encourage the growth
of the new economy and discourage lung cancer."
The complex array of
state and local telephone taxes are even higher and, combined
with the federal tax, they can reach as high as a third of telephone bills in
some states.
Like alcohol, tobacco or any sales tax, telecommunications
taxes are highly regressive, taking a larger share of the incomes of poor people
than of others. The average telephone tax nationally averages
18 percent, according to estimates by the Progress and Freedom Foundation think
tank, which is pushing for abolition. San Francisco's tax is estimated at 11.3
percent, Oakland's at 19 percent, San Jose's at 16.5 percent and Los Angeles' at
21.6 percent.
Supporters argue that repeal of the 3 percent federal tax
would encourage Internet use among minorities, the poor, the less-educated and
others on the wrong side of the so-called digital divide who have much lower
Internet use than higher-income households.
MORE ACCESS
"Suppose
I went to the store today and bought a $600 computer for my
daughter, and I wanted her to have fast access to the Internet," said Jeffrey A.
Eisenach, Progress and Freedom Foundation president and onetime technology guru
to former House Speaker Newt Gingrich.
"If I signed up for a DSL
(digital subscriber line) from the phone company, at current rates, I would pay
more in taxes on that DSL line over three years than I paid for the computer,
which has a three-year life," Eisenach said. "That extra $600
is a very substantial barrier in the case of many parents. It doubles the price
of a connected computer."
Eisenach has estimated that at least 150,000
households are priced out of Internet access by telecommunications excise taxes
-- a number he said will grow exponentially as more consumers get access to
high-speed Internet lines.
Matsui said he thinks the excise tax is "an
even bigger issue" than the sales taxes that are at center stage of the
controversy over Internet taxation.
"This just a general tax on the
overall usage of telephone service itself, whether you buy anything or not,"
Matsui said. "It's something that will create a disincentive in terms of whether
one uses the Internet or not, particularly for people at lower income levels."
LITTLE OR NO LOBBYING
In a reversal of normal policy-making
procedure in Washington, industry lobbyists have played little or no role in
fighting the tax. NetCoalition.com, which includes Internet players America
Online, Amazon.com, eBay and Excite@Home, takes no position. The excise tax does
not even make the legislative list of any of the big high-tech industry
associations.
"If you look at the 10 companies of NetCoalition.com, none
of them are at the forefront of this," said executive director Daniel Ebert.
"That doesn't mean they wouldn't support it as part of a package."
Telephone companies have shown little interest in repealing the tax.
Critics charge that's because it has no effect on profits because it is passed
directly on to consumer phone bills.
The Advisory Commission on
Electronic Commerce singled out the tax for elimination largely as a result of
lobbying by conservative advocacy groups. Commission member Grover Norquist,
head of Americans for Tax Reform, proposed the repeal at the commission's first
meeting, where he said it quickly received "overwhelming support."
Adam
Thierer, telecommunications analyst for the conservative Heritage Foundation,
said the commission "was searching for many months for something -- for anything
-- to agree on. The 3 percent federal excise tax quickly became the whipping boy
of almost every commissioner."
FEDERAL REVENUE AFFECTED
Thierer
said repeal is popular with governors and mayors because unlike state and local
sales taxes, eliminating the federal excise tax would affect only the federal
revenue, not cities and states.
The federal government would stand to
lose roughly $5 billion a year from repeal, adding up to a
substantial $50 billion over 10 years that would likely come
out of the projected surplus.
While the Spanish-American War is all but
forgotten, the tax it spawned has survived many attempts at repeal. It actually
was repealed in 1916 but was reinstated a year later to help finance World War
I. The tax was to be phased out starting in 1973, but instead was raised to the
current 3 percent in 1985 and made permanent in 1990.
Norquist calls it
a "parody of a lousy tax, pointing out that it was intended to be temporary and
to affect only the wealthy few who owned telephones in 1898, but that it has
become permanent and hits the poorest people the hardest.
DEMOCRATS
CAUTIOUS
Clinton administration appointees on the advisory commission
abstained from voting on the excise tax. Many Democrats remain leery of the
issue, in part because Republicans have attempted to lower the tax as a way to
replace the separate $2.5 billion e-rate telephone
tax championed by Vice President Al Gore to fund Internet access for
public schools and libraries.
Rob Atkinson, head of technology policy
for the moderate Democrat Progressive Policy Institute, said he worries that
"clearly the conservatives are pushing this, and it's not clear whether they're
pushing it because they see it as an easy tax to cut and downsize government, or
because this is a tax that really ought to be reduced."
Tauzin spokesman
Ken Johnson said repeal "can become extremely popular" in an election year, "but
clearly it's got to be a bipartisan effort. If Democrats believe that
Republicans will use this for tactical advantage, they're not going to support
it. It has to be a win-win for both parties."
LOAD-DATE: March 27, 2000
