NCPA - National Center for Policy Analysis


May 30, 2006

The Spanish-American War was fought in 1898 and lasted less than eight months, but Americans still pay an excise tax on phone service that was imposed to finance it. Last week, a mere 108 years after the end of that conflict, the Bush Administration moved to terminate the levy, says the Wall Street Journal.

Treasury Secretary John Snow said the Internal Revenue Service will no longer collect the 3 percent federal excise tax on long-distance phone calls and will offer refunds for the past three years. The courts have forced its hand with repeated rulings that the tax on long-distance is illegal in a telecom world in which calls are no longer priced based on distance. The IRS will continue to collect the tax on local calls, but Snow did express support for the idea of Congress passing legislation to repeal the tax entirely.

According to the Journal:

  • That would be the best outcome, and not just because a future administration might opt to begin collecting the tax again and restart the court battles.
  • So long as the tax exists, so will the political temptation to expand its scope and turn it into yet another revenue stream for the federal till. A Joint Tax Committee report issued last year suggested extending the excise tax to "all data communication services," including cable modems, cellular and DSL Internet connections.

The federal excise tax was intended to target "the rich," who at the time were the only ones who could afford a telephone. Yet our tax code still considers phones "luxury" items. The last time Congress came close to ending this charade was 2000, when majorities in both the House and the Senate voted for repeal, which President Clinton vetoed, says the Journal.

Source: Editorial, "Adios to a Phone Tax," Wall Street Journal, May 30, 2006.

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