Cable TV and Phone Calls Are Taxed at Twice the Rate of Other Goods, Study Finds

May 31, 2007
Heartland Institute staff

A new study produced by a team of researchers from The Heartland Institute and Beacon Hill Institute finds taxes and fees imposed on cable TV and telephone subscribers are twice as high as the average sales tax on other products.

The average household pays approximately $250 a year in taxes and fees on cable TV and telephone services, and would save $126 a year if taxes and fees on communication services were no higher than retail sales taxes on other goods.

Taxes and fees also were found to vary considerably from state to state, from one communication service to another, and depending on the technology used to deliver otherwise- similar services.

"Consumers pay more than $37 billion a year in communication taxes and fees," said coauthor David Tuerck, executive director of the Beacon Hill Institute and professor and chairman of the Department of Economics at Suffolk University in Boston, Massachusetts.

"Many of these taxes and fees are hidden in phone and cable bills. Because they are so high, they distort consumer decisions and business investment decisions, costing billions more every year in lost consumer benefits," Tuerck said

The research team tracked down information on cable television, wireline and wireless telephone, and Internet access for 59 U.S. cities.

The study found:

 

  • Taxes and fees imposed on cable TV and telephone subscribers are, on average, twice as high as taxes on other retail goods, 13.40 versus 6.61 percent.

 

 

  • Taxes and fees on communication services nationally add up to $37 billion a year.

 

 

  • Communication taxes and fees are highly regressive. Families in the lowest quintile of earnings pay 10 times as much as families in the highest quintile, as a percentage of their income.

 

 

  • Taxes and fees vary dramatically from city to city, with consumers in some cities paying more than three times as much as consumers in other cities.

 

 

  • In some cities, taxes and fees on wireline telephone service are even higher than taxes on beer and liquor.

 

 

  • Economists estimate the value of services lost due to high taxes and fees on communication services add up to a "deadweight loss" to society of $11.4 billion a year.

 

The authors recommend that local governments reform cable franchise laws, and state and the national governments consider policies to preempt local franchising authority and to prohibit discriminatory taxation of communication services.

The study, titled “Taxes and Fees on Communication Services,” was produced by a partnership of The Heartland Institute, a Chicago-based national think tank, and the Beacon Hill Institute at Suffolk University in Boston, Massachusetts. Complete data for each city can be found on the organization’s Web sites at http://www.heartland.org and http://www.beaconhill.org.

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Editors: To communicate with the authors, contact Harriette Johnson, mainstream media specialist for The Heartland Institute, at 312/377-4000 or by email at hjohnson@heartland.org.


The following experts in the field of communication taxes participated in the peer review of this report and may also be available to comment:

Barry Aarons, Research Fellow, Institute for Policy Innovation, phone 972/874-5139, email aarons1231@aol.com.

Jerry Ellig, Director of the Regulatory Studies Program, Mercatus Center at George Mason University, phone 703/993-4890, email jellig@gmu.edu.

Michael Hicks, Research Professor, Center for Business and Economic Research at Marshall University, phone 304/696-2313, email Michael.Hicks@afit.edu.

Scott R. Mackey, economist and partner, Kimbell Sherman Ellis LLP., phone 802/229-4900, email mackey@kse50.com.

Bill Peacock, Director, Center for Economic Freedom at the Texas Public Policy Foundation, phone 512/472-2700, email bpeacock@texaspolicy.com.


The Heartland Institute is a 23-year-old national nonprofit organization based in Chicago, Illinois. It is tax-exempt under Section 501(c)3 of the Internal Revenue Code. Nothing in this news release or the report it describes is intended to influence the passage of pending legislation. For more information, call 312/377-4000 or visit our Web site at http://www.heartland.org.