Cell-Phone Taxes Are Double Sales Taxes Nationwide

Published July 25, 2011

The combined tax burden on cell phones due to fees imposed by federal, state, and local governments is double the amount of the average retail sales tax, a study conducted by the Mercatus Center at George Mason University has found. Traditional explanations fail to account for the difference, the authors state.

In their paper, “Wireless Taxes and Fees,” authors Matthew Mitchell and Thomas Stratmann conclude wireless tax policy suffers from a “tragedy of the anticommons,” a situation where too many governments have the power to impose taxes, resulting in prohibitively high taxation. In New York City, for example, residents are assessed a total of 11 taxes on cellular services: a federal USF fee and five state and five local taxes.

“Mobile phone services seem to be singled out for particularly heavy taxation,” the report states. “The tax rates that apply to these services are significantly higher than those that apply to most goods. This above-average taxation is costly.”

‘Above-Average Taxation’
Mitchell and Stratmann continue, “Previous studies have found that these taxes cost consumers nearly $16 billion each year and that they cost the economy billions of dollars more than they yield in revenue.”

The authors add, “There is no strong normative justification for picking cell phones for above-average taxation. Cell phones do not have obvious negative-externality characteristics, they are not luxury goods, their users are not insensitive to price changes, and most of the tax does not go to support user fees. In many places, a portion of the rates funds subsidies for rural telephone service, but it is not clear why that burden should fall on cell phone users and it may slow the expansion of rural cell service,” they wrote.

Seton Motley, president of Less Government, a Washington, DC-based nonprofit group, says the study presents a compelling case against burdensome wireless taxes. “Wonder why our economy has ground to a halt, and is still a sputtering futility?” he asked. “It is the cumulative, accruing effect of big governments. That’s governments—plural. Not only is the federal government huge and bloated—and getting huger and more bloated—but state, county, and city governments have also been on an inexorable growth curve for decades,” he said.

“This accumulated multilevel tax and regulatory bloat has finally rendered our economy a sclerotic, inert mess,” Motley added. “Nowhere is this better demonstrated than on [government policy toward] cellular phones. All of this criss-crossed, overlapping, over-regulatory mess is absurd and needs to be dramatically stripped down and rolled back.”

‘Ponzi-Like Budgets’
“States and localities tax wireless services at high rates because of one simple thing: they can,” said Mike Wendy, director of MediaFreedom.org in Washington, DC.

“I think the root of the problem goes back to the federal excise tax on telephones—a levy once used to fund the Spanish-American War on the theory that telephones were then luxuries, owned only by the elites,” said Wendy. “That tax was on the books for over 100 years in one form or another. Most people didn’t even know that they were paying it. Politicians learned early that they could easily hide unpopular taxes in the dark recesses of monthly phone bills.”

Wendy added, “”Humans need to communicate. And wireless services make that easier. Their near-essential nature makes them easy targets for politicians looking to balance their Ponzi-like budgets.”

Phil Britt ([email protected]) writes from South Holland, Illinois.

Internet Info

“Wireless Taxes and Fees: A Tragedy of the Anticommons,” Matthew Mitchell and Thomas Stratmann, Mercatus Center, George Washington University, January 2012: http://news.heartland.org/sites/default/files/wireless_taxes__fees_tragedy_of_the_anticommons.pdf