Locals Set Example for State on Telephone Taxes

Published February 1, 2007

This past election day, two key cities in Silicon Valley voted to reject sky-high telephone taxes. If state lawmakers don’t heed the rising voice of residents, they may have to answer to a new telephone tax revolt in California. At issue is the Utility Users Tax (UUT), a municipal surcharge paid by nearly half the communities in the Golden State.

Despite claims that the tax supports critical public services, in practice the UUT functions as a slush fund, pumping money into a city’s general budget for government leaders to take and spend as they please. With the lion’s share of revenues coming from landline and cellular customers, and rates as high as 11 percent of a monthly service plan, local governments are successfully swindling telephone customers out of more than $600 million annually.

This comes on top of the billion-dollar phone tax bill that bureaucrats require state residents to pay. Indeed, California residents pay more than $1 billion each year in telephone taxes to finance a laundry list of broken state programs, many of which underwrite bureaucratic salaries, wasteful welfare subsidies, and dubious public expenses.

Five ‘Universal Service’ Taxes

For example, take California’s 911 phone tax. This was intended for upgrades to the state’s emergency telecommunications network, but Sacramento legislators have raided it for non-related programs, to the tune of more than $100 million.

Other culprits include California’s five “universal service” taxes, which rake in more than $800 million for unaccountable subsidies. A government report stated in early 2006 that “program review is long overdue,” as there has never been any evaluation to determine whether the universal service programs are even meeting their stated goals, despite billions of dollars being paid in taxes.

Telephone bills are now taxed at the level of “sin” products such as cigarettes and liquor. Residents also pay state sales taxes, business taxes, and federal taxes, all of which have consequences. Less money in the pockets of consumers and companies means fewer capital investments in new communications technologies, especially those from Silicon Valley, stifling the state’s economic growth.

With bureaucratic abuse growing and little tax relief in sight, it’s not surprising voters have taken matters into their own hands. Last November residents in Portola Valley voted on a ballot measure to cut their utility tax rates, and Menlo Park voters refused to endorse an initiative that would have added a new UUT on their phone bills.

These communities provide a model for citizens to save their phone bills from bureaucratic abuse. Granting government more tax dollars through nickel-and-dime schemes like the UUT will only encourage new wasteful policies and growth that will demand even more funds in the future.

State residents should continue to place their utility taxes on the chopping block, but the massive phone tax bill everyone pays requires real leadership from Sacramento. Newly re-elected Governor Arnold Schwarzenegger would be wise to press the California Public Utilities Commission and the Board of Equalization to rein in these wasteful phone tax programs.

Hanging up on the telephone tax man will save consumers billions of dollars and keep California’s economy rolling. If state lawmakers fail to grasp the urgency and act, then next election day residents should consider hanging up on them.

Vince Vasquez ([email protected]) is a policy fellow at the Pacific Research Institute.