As state budget woes grow and politically viable solutions shrink, state legislators often turn to hidden taxes and fees for extra revenue. Nowhere is this as evident as it is in on your cell phone bill, especially if you live in Nebraska (18.64%), Washington (17.95%), New York (17.78%), or any of the other 23 states that now impose wireless taxes of greater than 10%. The average wireless consumer faces taxes and fees amounting to more than 16% of their bill. These taxes are considered by most experts to be regressive information taxes, disproportionately affecting those in the greatest need. The out of control taxes on cell phone bills more than double the average tax on other taxable goods and services.


The Wireless Tax Fairness Act of 2011 – spearheaded by Reps. Zoe Lofgren (D-CA) and Trent Franks (R-AZ) and Sens. Ron Wyden (D-OR) and Olympia Snowe (R-ME) – promises a five-year “catch your breath” moratorium on state and local wireless taxation. The intent is to freeze the out-of-control taxation long enough to wait out the current fiscal crisis, taking away the crutch some states are using to fill their budget holes.  The bill is the third such attempt in five years, but also marks the most robust and popular version.


In her remarks, Rep. Lofgren said:


“By freezing wireless taxes and fees, we hope to spur additional consumer driven development in wireless broadband and to increase access to advanced wireless networks. This legislation is about stabilizing the wireless and giving consumers the opportunity to choose services based on the merits and not on the changing rate of taxation.”


The state taxes in questions come in addition to (and often mirror) federal programs like the Universal Service Fund, which taxes all consumers cell phone bills and spends the money to increase access to the poor and rural areas. The problem is that the Universal Service Fund (and daughter programs in the states) loses in bureaucracy far more than it could gain in providing access. One study found that money spent from the federal Universal Service Fund saw less than 41 cents of every dollar actually used in building infrastructure, its intended use. The remaining 59 cents of every dollar were lost in bureaucracy and administrative costs.


A wireless association executive, CTIA’s Steve Largent, says that increased taxes are incomprehensible in a time of economic downturn:


“In light of today’s challenging economic conditions it is hard to understand why the average wireless consumer is being charged more than 16 percent in taxes and fees when other taxable goods and services are only 7.4 percent.”


As Largent goes on to illustrate, increased wireless taxes seem to completely contradict the espoused goals of policymakers looking to expand broadband Internet access to all Americans.


Wireless taxes are especially troublesome because of not only what they limit, but whom they limit it. As wireless Internet grows in popularity, it becomes for many the only portal to the Internet. Recent studies show that minorities and the impoverished are far more likely to depend on wireless service as both their primary method of communication and their primary method of Internet access.


It’s rare to see Washington politicians saving us from overreaching state governments, but this seems to be the case here. If Congress really wanted to get serious about spurring innovation, the adoption of wireless services and expand Internet access to everyone, they might consider lowering federal cell phone taxes while they’re at it. One miracle at a time.


The Wireless Tax Fairness Act is a fine start, but as Scott Mackey points out, much of the damage has already been done. Forty-seven states already levy taxes and fees on wireless customers greater than the average good or service. A moratorium on taxes gives consumers time to catch their collective breath, but it’s up to legislators to look at ways to cut these regressive taxes back down to size. Doing so will undoubtedly spur innovation in the fastest-growing sector of the economy and begin to make high-speed Internet accessible to everyone.


Zack Christenson blogs for the American Consumer Institute on tech policy, and is a digital strategist at The Heartland Institute