WASHINGTON—The mobile-phone industry applauded the Bush administration’s decision today to abandon the U.S. government’s long-held support for the federal excise tax on long distance wireless and wireline telephone services.
The tax, incorporated in 1898 to fund the Spanish-American War, adds 3 percent to monthly bills of the 214 million cellular subscribers. The U.S. government has lost several FET challenges in federal appeals courts around the country in past months.
“With the FET finally taking its rightful place aside the Spanish-American War in our history books, wireless consumers can now turn their attention and efforts to repealing discriminatory wireless taxes on the state and local level,” said Steve Largent, president and chief executive officer of cell phone association CTIA.
Since Largent became president and CEO of the wireless trade group in September 2003, the industry has made fighting discriminatory wireless taxation a top priority.
In addition to saying the administration would no longer defend the federal long-distance phone tax, Treasury Secretary John Snow said the White House will support a bill sponsored by Sen. Rick Santorum (R-Pa.) to remove the 3-percent FET on local wireless and wireline telephone services.
“Today is a good day for American taxpayers. It marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history,” said Snow. “The federal appeals courts have spoken across the board. It’s time to ‘disconnect’ this tax and put it on the permanent ‘do not call’ list.”
Getting rid of the FET will cost the U.S. Treasury $13 billion in refunds during 2007 and 2008, Snow said at a press briefing this morning. However, the administration, currently facing a huge budget deficit, will take a far bigger hit in years to come. The administration’s budget forecast had relied on more than $42 billion from the FET through 2011.
No immediate action is required by taxpayers. Refunds covering local service taxes during the past three years likely will be a part of 2006 tax returns filed in 2007. The Treasury Department said the Internal Revenue Service is working on a simplified method for individuals to use to claim a refund on their 2006 tax returns.
The wireless industry has been lobbying for years to ax the 3-percent federal tax.
“This decision is a great victory for consumers, and the IRS has finally caught up with the courts. The tax didn’t make sense, it unfairly targeted consumers, and that’s why the courts voided it. These days, almost everyone has a cell phone and almost everyone is sick of being nickel and dimed,” said Sen. Charles Schumer (D-N.Y.). Earlier this year, Schumer wrote the IRS to call for an end to federal phone tax.
Senate Finance Committee Chairman Charles Grassely (R-Iowa) said he intends to have his panel consider legislation to abolish the tax altogether.
“It’s time to give up the ghost and get rid of this outdated tax,” Grassely said. “Today is a turning point in the long battle to stop the levy for a war that ended 100 years ago. This tax hits every telephone owner, but it doesn’t pay for any specific program. It now pours billions into the U.S. Treasury every year for no reason. It’s time to hang up the telephone tax.”
Grassley introduced a bill in 2001 to ban the telephone excise tax. Congress passed legislation to phase out the fee in 2000, but the appropriations bill in which it was included was vetoed.
