In February, at CTIA’s Wireless ’98 convention and exposition in Atlanta, I talked with Sen. John McCain (R-Ariz.) about many of the policy issues facing the U.S. wireless industry. We discussed the fact that despite government’s mandate on telecommunications companies to compete, government itself was hamstringing competition because of the old monopoly-think that won’t quite go away. One continuing problem is that consumers still pay 20 percent to 30 percent of their telephone bills (both wireless and wireline-the percentage depends on where they live) in taxes, mandates and fees imposed by local, state and federal governments.
At a time of monopolistic telecommunications in the United States, customers had no choice: pay the taxes, fees and mandates or don’t have phone service. As wireline service became ubiquitous, this “inelastic” system did not deter demand. But with the vast array of choices consumers have in selecting wireless and long-distance service, and the beginning of competition in local service, potential customers are much more sensitive to price, which can mean the difference between signing up for service or not. This “elastic” demand calls for an end of government’s monopolistic way of thinking-using phone bills to collect or revert revenue from the public-and effectively increasing the costs to consumers.
When Sen. McCain and I talked at Wireless ’98, perhaps nobody in the audience was more pleased than I when he said he would immediately introduce legislation to remove a portion of the overall tax burden paid by phone customers. This tax-the 3 percent Federal Tax on Talking-was first implemented as a temporary “luxury” tax in 1998 to pay for military needs during the Spanish-American War. Over the past 100 years, it has occasionally lapsed, or increased (during World War I), and most recently joined excise taxes on “sins” in the federal budget, which are taxes designed to discourage certain behaviors. Imagine: a phone call to wish your mother a happy Mother’s Day is taxed just like a pack of cigarettes, a bottle of gin, fossil fuels or ozone-depleting chemicals!
Sen. McCain kept his pledge. Just as Congress was breaking for its spring home-work period, he introduced a bill-S. 1909-that would repeal the 3-percent Federal Tax on Talking.
On the Senate floor, Chairman McCain declared, “The telephone excise tax is not a harmless artifact from bygone days. It collects money for wars that are already over, and for budget deficits that no longer exist, from people who can least afford to spend it now and from people who will have new bills to foot as the 1996 Telecommunications Act gets implemented.”
At the same time, Congresswoman Jennifer Dunn (R-Wash.) introduced H.R. 3648 in the U.S. House of Representatives to repeal the Tax on Talking.
Congresswoman Dunn’s leadership is significant; she is vice chair of the House Republican Conference and sits on the powerful Ways and Means Committee. Congressman Billy Tauzin (R-La.), a true visionary on telecommunications policy and the chairman of the House Subcommittee on Telecommunications, joined as an original co-sponsor of the House bill.
It is significant that we have both a leader in tax policy-Congresswoman Dunn-and two leaders in telecommunications policy-Sen. McCain and Congressman Tauzin-who are the champions of this effort, because they are at the nexus of the issue of government tax policies in a competitive telecommunications marketplace. I expect that we will have a very healthy and vigorous debate, not just on the Federal Tax on Talking, but the whole question of the role of government in the competitive marketplace. The excise tax becomes the focus for that debate, but the issue is much broader for telecommunications consumers and companies.
Although the initial congressional sponsors of the excise tax repeal are Republicans, it is clearly a bipartisan issue. Why? The 3-percent federal excise tax on telephone service is regressive. The Department of Treasury, Office of Tax Analysis, reported in 1987 that, “The communications excise tax causes economic distortions and inequities among households, and there is not policy rationale for retaining the tax.” Also, excise taxes force a disproportionately large tax burden on rural consumers. When it enacted the 1996 Telecommunications Act, Congress specifically recognized the need for all Americans to have affordable telephone service. The tired, old, nonsensical luxury tax on telephone service is flatly inconsistent with current public policy. Democrats and Republicans recognize that the repeal of the 3-percent excise tax is about equality, fairness and consistent public policy.
Make no mistake about it: there is a need to overhaul government’s expectations of the companies and consumers in the competitive market. The Federal Excise Tax on Talking is one of many examples of governmental policies that impose taxes and mandates on telecommunications services; it is the kind of graphic illustration of why that policy has to change. Because the wireless industry is the most competitive of all telecommunications, it falls to us to create full awareness that the competitive marketplace requires that government must change the way in which our competitive services are burdened with taxes and other governmental mandates.
The prices for telecommunications services can and will decrease, but only if government doesn’t siphon the savings out of the consumers’ pockets with taxes, fees and mandates. The dirty little secret that existed between government and industry to hide taxes in phone bills cannot continue. Taxes and mandates do not encourage competitive markets.
I don’t want to make light of the magnitude of the task. There is a long distance from introducing a bill to passing a law. Repealing a 100-year-old law does not occur without teamwork. To eliminate even the 3-percent Federal Excise Tax on Talking, the wireless telecommunications industry will reach out broadly and enlist support not only from others in the telecommunications field, but from a broad spectrum of Americans. The beauty of this bill is that through passage, it will have a positive financial impact on every American who uses a phone. We will ask our employees to participate by contacting their representatives in Washington. We will encourage our customers and suppliers to ensure their voices are heard. To win just this one victory, our collective talents and muscle is required.
At the end of the day, we can be successful: not only win repeal of the Tax on Talking, but by changing the fundamental way in which government approaches our customers when it comes to taxation policy.
Thomas Wheeler
president and CEO
Cellular Telecommunications
Industry Association
