NCPA - National Center for Policy Analysis

TAX ON TALKING

April 22, 2008

Among the better ideas John McCain announced last week is a ban on new cellphone taxes.  For America's 257 million wireless subscribers, the GOP Presidential candidate is advancing a sensible policy with political punch, says the Wall Street Journal.

The average monthly tax burden on wireless customers is more than 15 percent -- double the average sales tax burden, says economist Scott Mackey.  Increased Federal Communications Commission fees to underwrite universal service plus higher state taxes have offset the potential relief for consumers.

If the politician were exercising even modest restraint, wireless consumers would now be enjoying a reduced tax bill, says the Journal:

  • That's because in 2006 the IRS stopped applying the Federal Excise Tax on Telecommunications to wireless services, and they weren't being generous.
  • After the IRS suffered a series of defeats in federal court, then-Treasury Secretary John Snow ordered the bureaucrats to stop gouging consumers.
  • The language of the law, passed in 1898 to fund the Spanish-American War and rewritten in the 1960s, clearly did not apply to today's digital services.

The IRS appears to be seeking payback for its lost ability to tax wireless service. Audits of large organizations have lately included a demand that all wireless calls be allocated between business and personal use. Where there is no documentation that most calls are for business, the phones have to be treated as taxable benefits to employees.

Congress should immediately call a halt to this bizarre IRS campaign against legitimate business expenses.  But even if the politicians rein in IRS auditors, wireless customers will still be paying $21 billion per year in taxes and fees on their monthly bills.  If there is a policy argument that consumers of this technology should be taxed at twice the average sales tax rate, we haven't heard it, says the Journal.

Source: Editorial, "Tax on Talking," Wall Street Journal, April 22, 2008.

For text:

http://online.wsj.com/article/SB120882237427633083.html 

 

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