Last Thursday, the House Judiciary Committee voted to move H.R. bill 1002 to the full House floor for consideration. The bill, better known as the Wireless Tax Fairness Act of 2011, was drafted to help halt the discriminatory increases in state and local wireless phone and data service taxes that have been passed over the last decade.
The language in the bills is as follows:
“No State or local jurisdiction shall impose a new discriminatory tax on or with respect to mobile services, mobile service providers, or mobile service property, during the 5-year period beginning on the date of enactment of this Act.”
The progress of this bill is significant because, although federal fees can be credited with most recent growth in overall costs, combined state and local taxes account for much of the increase. Tacked on to actual product and service prices, state sales taxes, local and state 911 fees, universal service funds, local utilities charges, and federal taxes all add up to increase the overall wireless costs to consumers.
Twenty-three states are now home to wireless taxes over ten percent, and the national wireless tax average now exceeds sixteen percent- two times higher than the average retail sales tax rate. The Heartland Institute’s Director of Government Relations, John Nothdurft, says that:
“There is no legitimate reason that the combined tax rate on mobile devices should be twice as high as the tax on other goods and services. These discriminatory taxes will hinder the growth of an industry that is on the front lines of innovation and job creation.”
The International Association for the Wireless Telecommunications Industry correctly notes the importance of investments in broadband networks to both short-term economic recovery and long-term growth. Placing excessive taxes on this sector hinders this investment and is ultimately detrimental to the overall economy.
President Obama plans to continue spending to expand wireless broadband infrastructure to presently underserved areas at the expense of taxpayers. This goal is difficult to justify given that wireless taxes themselves actually deter infrastructure improvements and private-sector innovation.
A recent study by the Technology Policy Institute notes that out of every tax dollar in the Universal Service Fund (USF), as many as 59 cents go toward overhead costs and items other than infrastructure improvement. This inefficient use of taxpayer money is not limited to the federal level. While twenty-one states subsidize other telecommunications initiatives by taxing wireless providers, some states put this same revenue toward efforts in almost entirely unrelated industries. In Utah, wireless bills go toward poison-control centers, and Wisconsin uses wireless tax revenue to fund police and fire protection.
Even if wireless taxes had no negative impact on economic growth and wireless infrastructure development (they do), it is unlikely that more taxpayer dollars in the USF would lead to much more than more bureaucracy.
The final flaw of excessive wireless taxes is the disproportionate burden they place on low-income consumers. Says Managing Editor of The Heartland Institute’s InfoTech & Telecom News, Bruce Edward Walker:
“Now that most households have cancelled land line phone service for the convenience of wireless phones, the average tax surcharge of 16.9 percent is onerous for low-income consumers who rely solely on cell phones for emergency purposes.”
Indeed, two-thirds of minority and low-income consumers reside in wireless-only households, wherein lies the last wireless tax paradox. As The Heartland Institute’s Mark Oestreich points out, “taxes that make internet access unaffordable harm the very groups they purport to assist.”
Any step towards restraining the excessively high taxes on this industry will be good for consumers and the economy.