ATR Policy
Brief-- Abolish the Telephone Tax
by Peter J. Ferrara
All Americans today pay a telephone excise tax equal
to 3% of their monthly telephone bill. Congress first adopted
a telephone excise tax in 1898 to help finance the Spanish-American
war. The war ended within a year or so. One hundred years
later, the telephone excise tax is still with us.
The tax is an object lesson in how supposedly
temporary government programs and taxes, once adopted, never
end. For the telephone excise tax has been continued for 100
years now on one temporary excuse after another. The tax was
actually phased out after the Spanish-American war, but was
reimposed on long distance calls in 1914, and then fully reinstated
to help finance World War I. It was brought back to bolster
government revenues during the Great Depression, and then to help
pay for World War II and the Korean War.
In 1966, the tax was increased from 3% of telephone
bills to 10% to help pay for the Vietnam war. After the war it
was phased down to 3%, and then extended repeatedly in the 1980s to
help cover the deficit. The tax was permanently set at 3% in
the 1990 budget deal to close the deficit. Now the deficit is
long gone and the budget is in surplus, but the telephone tax is
still with us.
The tax was originally adopted as a luxury tax on the
rich, as only higher income people had phones 100 years ago.
Today, the tax is a regressive burden on low income workers, as it
amounts to a much larger share of the meager incomes of the poor
than of the rich. Another lesson: taxes first adopted on the
rich always end up being paid by the middle class, where the real
money is. Often , even the poor end up paying. The telephone
excise tax imposes a total burden on the public of $5-$6 billion per
year. It is one part of the oppressive overall tax
burden, which costs the average family more than food, clothing,
and shelter combined. Taxes overall take 40% of national
income, which is far too high. There is no justification for the
telephone tax and it should be repealed, as part of a broader,
overall tax reduction program.
Peter Ferrara is General Counsel and Chief Economist
of Americans for Tax
Reform |