Michigan House Proposes New Telecom Tax

Published September 1, 2007

The Michigan House of Representatives is considering a bill that would levy a “public safety” surcharge of $1.35 on all phone bills to fund a variety of law enforcement-related programs.

The bill, introduced in May by Rep. George Cushingberry (D-Detroit), was due to come up for a vote in late July, but as of early August it had not been placed on the calendar. At press time the measure remained in the House Appropriations Committee

Despite its name, the Emergency Telephone Service Enabling Act (HB 4852) allocates only 25 percent of its revenues to telecommunications. The remaining three-quarters will fund the Forensic Science Division of the Michigan State Police, the Traffic Law Enforcement and Safety Fund, a state criminal justice information system, and the Michigan Commission on Law Enforcement Standards.

The tax also would support probation and parole monitoring systems, the Bureau of Fire Services, and the Detroit Police Department crime lab.

Ambiguous Definition

Since the bill’s language calls for a tax on each “user,” it is unclear whether the surcharge will be assessed per account or per line. Neither Cushingberry nor his staff returned calls to clarify. However, the Michigan Chamber of Commerce, AT&T, and the Telecommunications Association of Michigan all understand it to be a per-line tax.

That means if the bill passes, Michigan consumers and businesses can expect to pay an additional $1.35 per month on each landline and wireless phone line they, their family, or their employees use.

“Based on the $200 million in revenues they want the bill to raise, [per line] is the only way to calculate it,” said Scott Stevenson, president of the Telecommunications Association of Michigan, which opposes the tax.

Most of the programs the tax will fund are unrelated to telecommunications, said Stevenson. As basic elements of police, fire, and public safety, he noted, they should be budgeted from the state’s general revenues, not through a special tax. As for emergency services such as 911, Stevenson said those programs already have separate funding sources.

Stevenson further questioned the bill’s funding of a 911 “non-emergency” division, since 911 is, by definition, designed only for emergencies.

Rising Taxes, Spending

Rising tax and spending levels in Michigan have been under fire from business groups, taxpayer rights organizations, and policy think tanks, which blame them for the sluggish state economy, high unemployment rate, and growing exodus of businesses.

According to the Tax Foundation, Michigan ranks 12th in the nation in tax burden per dollar of state gross domestic product. The average Michigan state government employee receives salary and benefits worth nearly $75,000, compared to approximately $58,000 in the private sector, according to legislative analyst Jack McHugh in a study for the Midland, Michigan-based Mackinac Center for Public Policy.

With Michigan’s controversial Single Business Tax set to end January 1, 2008, the state is looking to offset the revenue loss through other businesses taxes. Gov. Jennifer Granholm (D) also has proposed an increase in the state income tax.

Regressive Tax

Basic phone service has been one of the few areas where residents got a break. In a survey of 59 large- and medium-sized markets published by the Chicago-based Heartland Institute this May, Lansing had the distinction of imposing the lightest tax burden on communications services–5.81 percent, or $10.93 on an average combined household bill of $151.67 for landline, wireless, cable TV, and Internet services.

That percentage was less than half the national average of 13.52 percent, or $20.51 on average. But that will change if HB 4852 passes.

Because the Michigan telecom tax would be regressive–everyone, regardless of income, will pay the same amount–critics say it would disproportionately affect access of low-income consumers to the Internet and new telecommunications technologies, further widening the gap between telecom haves and have-nots. The Heartland study found that as a proportion of income, low-income households pay up to 10 times more in telecom taxes than wealthier users.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.

For more information …

Michigan HB 4852: http://www.legislature.mi.gov/documents/2007-2008/billintroduced/House/pdf/2007-HIB-4852.pdf

Jack P. McHugh, “How to Avoid Raising Taxes,” Mackinac Center for Public Policy, July 6, 2007: http://www.mackinac.org/article.aspx?ID=8798

David Tuerck, Paul Bachman, Steven Titch, and John Rutledge, “Taxes and Fees on Communication Services,” The Heartland Institute, May 31, 2007: http://www.heartland.org/Article.cfm?artId=21104