There may soon be another source of taxes, as Congress may let the Internet’s protection lapse, chilling the next wave of Internet evolution. Internet access service was protected from taxation under the Internet Tax Freedom Act (ITFA) and its predecessors. That protection was extended until Dec 11, 2015. If Internet access is not given permanent protection from taxation, state and federal lawmakers who are desperate to plug their budget holes will descend on it like vultures. To understand the gravity and scale of these potentially new taxes, there is no better place to look at the heavy taxation already affecting consumers and their wireless services.
Today, consumers pay $6 billion more in taxes on their wireless services, when compared to taxes and fees applied to other goods and services in their state, according to a new report from the Tax Foundation. These mobile wireless taxes are extracted as both per-line charges and as a percentage of monthly bills that average $46.64.
The report shows that the average rate of state mobile wireless tax increased from 10.2% in 2003 to 11.5% in 2015. On top of that, a current federal tax of 6.5% is applied, which means that the average consumer pays 18% for wireless services in the U.S. In other words, lawmakers punish wireless consumers with an aggregate tax rate of 18%. Given that average sales tax on other goods and services 7.6%, but for reasons that fail common sense, consumers face taxation on wireless service at punitively high rates.
States compose of 64% of the tax burden on mobile wireless consumers, but their tax rates vary widely. Florida recently cut back on the mobile wireless tax rate, which shows that that high tax rates are not essential, and Oregon, Nevada and Idaho manage to keep their wireless tax rates below 5%.
Savvy states rein in their tax rates acknowledging that mobile wireless is the smart communications choice for many poor families to use and that 59% of poor adults use only mobile wireless for communications. Mobile wireless provides for flexibility of location, essential for working people and parents, and coupled with a smart phone, mobile wireless can be a low-income family’s most economic link to Internet services.
Mobile wireless has been a monumental success for the US, serving nearly 300 million Americans with affordable communications to family and friends and to the broad services of the Internet. Mobile wireless applications have boosted the productivity of workers, allowing for gains in wages. But instead of recognizing and encouraging the constructive role that mobile wireless plays for families and the economy, state-imposed mobile wireless taxes rival those imposed on tobacco or alcohol.
While mobile wireless services have established a river of benefits to families and the economy, the Internet has delivered an ocean of improvements that suffuses all corners of our economy. Internet’s societal impact arrived as successive waves of technology improvements, each fostering upgrades in commerce, education, health care, and jobs. Early in each stage of Internet evolution, the technology started out fragile and financially risky – something that could be mortally wounded by an effective price increase of 18%. Fortunately, policy makers had patience and trust that each emerging stage would deliver strong benefits if allowed to mature. That confidence restrained the brutish temptation to harvest a quick pile of cash by taxing the Internet.
Why do we tax what we should be encouraging?
The fact is that we are on the cusp of the next important stage of evolution – the Internet of Things(IoT). The IoT will employ radio frequencies to coordinate among applications such as factory floor robots and sensors, household environment controllers, driverless automobiles and drones, and others that total $4 trillion to $11 trillion in economic benefits. The billions of IoT devices servicing individuals and groups will tend to use less bandwidth than current wireless devices and they will harness improved encryption.
The benefits from restraining taxation on Internet access and on mobile wireless are crystal clear and compelling. States and federal lawmakers must reset mobile wireless taxes to the normal levels for applied to everything else and, equally important, Congress needs protect our future with a continued ban on Internet access taxes.
Steve Pociask and Alan Daley write for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org. This article was published and is available online at FORBES.