End the Telephone Tax
By James K. Glassman
Tech Central Station May 22, 2000
Hey, kids! It's time for a U.S. history lesson and in the
process, we're going to test your reading comprehension skills. Please read this
chronology of the Spanish-American War and tell us which line doesn't make any
sense:
February 24, 1895 Second Cuban Insurrection against
Spanish rule begins.
August 26, 1896 Philippine Revolution against Spanish
rule begins.
January 17, 1898 Concerned about rising
violence and the safety of Americans in Cuba, American Consul-General Lee asks
for U.S. naval ship to be dispatched to Cuba.
January 25, 1898 U.S. battleship Maine arrives in
Havana.
February 15, 1898 Explosion sinks Maine in Havana
harbor, killing 266 U.S. crewmen.
February 16, 1898 Congress passes telephone tax to
fund possible military action.
April 22, 1898 U.S. Navy begins blockade of Cuba.
April 23, 1898 Spain declares war on U.S.
April 25, 1898 U.S. declares war on Spain.
May 1, 1898 U.S. Admiral Dewey wins Battle of Manila
Bay in Philippines.
July 1, 1898 Teddy Roosevelt's "Rough
Riders" win Battle of San Juan Hill in Cuba.
August 9, 1898 Spain surrenders.
May 17, 2000 House Ways and Means Committee
recommends repeal of telephone tax.
So, which line doesn't make any sense? Well, if you answered
"the last one," you're correct. The Federal excise tax on your
telephone bill, currently 3% and included in general revenues to the Treasury,
outlived its purpose more than 100 years ago.
In truth, this tax born in the shadow of war in 1898 has come
and gone several times, and for most of its history the rate fluctuated until
Congress voted in 1990 to make it permanent at 3%. Still, this year marks the
third century in which Americans are paying a tax originally created to support
a war which lasted less than five months. When you include other state and local
taxes, that means that some callers and Net users are paying more than 20% of
their phone bills in telecommunications taxes.
Of course, at TechCentralStation we'd like to see the repeal
of all telecom taxes at all levels. Just like other sales taxes, they're
regressive and they discourage the growth of the online economy. But as a modest
beginning to reform, with the Feds running a massive surplus, it's time to ax
the Federal phone tax. I'm the last person to suggest that the government should
use taxes to encourage or discourage certain habits like smoking or drinking.
But even if you believe in the role of excise taxes to give us
a better society, do you really want to discourage phone calls and Internet
usage? If you believe the tax system has a valuable role to play in social
engineering, wouldn't you want to give people a tax credit for embracing new
technology?
More fundamentally, there's an issue of accountability here.
We shouldn't use the telephone system, or any other private network, to collect
taxes. We already have the I.R.S. to do that. Politicians who think the
government needs more money should be forced to raise income tax rates and
explain in the light of day why it's necessary, instead of slipping obscure
charges into the fine print on our various bills.
The telephone tax has done its job. It helped fund, not only
the Spanish-American War effort, but also U.S. forces in World War I, World War
II and Vietnam. Now it's time to give this tax an honorable discharge. The
government doesn't need the money and America doesn't need a tax on talking.
Class dismissed.
James
K. Glassman is the host of Tech
Central Station, an online meeting place for technology news, analysis, and
market intelligence providing a free-market agenda for high technology. He is
also a trustee of the Reason Foundation.
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