What Are The Tax Planners Thinking?

Today 277 million consumers use mobile wireless service.  For some it’s their only “phone.”  For many it’s how they coordinate family schedules and their children’s location and needs.  For many employees, it’s the link that lets them do their job better, adding a massive $70 billion per year to US productivity.

 

So we’d expect governments to encourage wireless use, wireless innovation and greater affordability for low income consumers.  Well, we’d be wrong. 

 

Federal, state and local governments impose punitive taxes, fees, and charges that average 16.3% on wireless compared with 7.4% for all other goods and services.  The 9 percentage point oversized tax burden suppresses demand by about 10%, choking productivity and hitting low income families the hardest.   As well, wireless providers would likely have invested 10% more if wireless were treated the same as other goods and services.

 

Most of the state and local taxes collected are tossed into general revenues, hardly a special purpose that justifies punitive tax on consumers.  

 

Federal taxes, i.e. Universal Service Fund (USF) contributions, average about 5% out of the 16.3%.  These taxes support old fashioned phone service in rural areas and support internet access for schools and libraries, a project largely completed a decade ago.   Recently the Federal Communication Commission has discussed subsidizing some consumers’ access to broadband, a new way to spend USF Funds, but public sentiment does not support a new broadband subsidy or entitlement.  

 

Consumers are not pleased by the tax treatment of wireless.  In a recent poll, ACI asked 684 wireless consumers: “Is it fair or unfair for wireless telephone taxes to be higher than sales taxes on other goods and services.”  The results were: 87% “unfair”, 7% “neutral/unsure”, and just 5% “fair.”  Consumers see the issue clearly.

 

Governments strangle wireless consumers with excessive taxes.  Imposing punitive taxes on wireless is hostile toward job creation and American incomes.  And consumers see it as unfair.  Taxes that consumers pay for mobile wireless should be normalized to the same level applied to other goods and services.

 

Alan Daley is a retired businessman living in South Carolina.  He follows information technology from the consumer’s perspective.

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