Another Appeal for Tax Repeal

A bill to repeal the 3% federal excise tax on telecom, commonly known as the "tax on talking," hit the floor of the U.S. House of Representatives on March 14. Rep. Rob Portman (R-OH) introduced the bill, the third of its kind introduced in the past two years.

The first bill emerged on April 1, 1998, and was referred to the House Ways & Means Committee, but no additional action was taken. Another, introduced into the Senate on April 2, met a similar fate.

But some proponents of the new proposal say today's political environment improves this bill's chances. For example, James Gattuso, Competitive Enterprise Institute vice president of policy and management, said that consumer pressure is one major force against the tax. He said that many consumers have become more informed about the tax and view it as a punishment for using telecom services.

"Also, there are record-breaking surpluses at the federal level," Gattuso said. "So there is a stronger case than in the past that the money should be returned to the taxpayer in some way."

Business and public-interest organizations have formed a group to promote public support of the bill. The Repeal the Tax on Talking Coalition argues that the tax disproportionately hurts poor people and rural telecom customers and widens the digital divide by limiting access to the Internet.

Like Gattuso, the coalition's co-director, Ed Gillespie, said that the political environment favors the bill. He noted that the majority in Congress is considering several tax-relief bills and that the bill enjoys bipartisan support.

"You're not likely to find a tax that both majority leader Dick Armey (R-TX) and minority leader Dick Gephardt (D-MO) both support," Gillespie said.

So how much lower will the average consumer's phone bill be if this bill passes? According to CTIA's Semi-Annual Wireless Survey, released in April, the average wireless consumer pays about $41.24 a month. The federal tax on that amount would be $1.24. This figure does not, of course, take into account small businesses or individuals whose wireless bills exceed the average. For average consumers, however, the tax appears minor, by ordinary standards. So why is repealing the tax so important to the industry?

"Industry is focused on trying to make wireless affordable," said Ken Woo, AT&T Wireless director of communications. "When you have tax upon tax upon tax, that goes against what we're trying to do in this industry."

Gattuso flipped the question: If the tax is so minor, why not repeal it?