^{Democracy & Technology Blog} Repeal the Telephone Excise Tax

Senator Rick Santorum (R-Pa.) and Congressman Gary G. Miller (R-Calif.) have introduced the Federal Telephone Excise Tax Repeal Act of 2005 (S.321; H.R. 1898). Taxes which target communications services are one of the reasons that 15 other countries enjoyed faster broadband deployment than the U.S. on a per capita basis in 2004 (Click here to see the rankings). Eliminating this tax ought to be a high priority.

Currently, the tax applies to telephone and teletypewriter services that existed in 1965 when the statute’s current definitions were enacted. Since that time, “numerous questions have arisen,” according to the IRS, concerning the applicability of the tax to newer services. The IRS issued a notice of proposed rulemaking last year in an effort to make the tax easier to collect.

Earlier this year, Congress’ influential Joint Committee on Taxation (JCT) suggested various options for “updating” the tax. The options would ensure that some or all of the following services would pay: VoIP, cellular and satellite telephone services, the communications component of cable and satellite television services, broadband and dial-up Internet access services, paging services, and more. To its credit, JCT acknowledged that, “Any excise tax distorts consumer decisions, and taxing new services and new technologies makes them more expensive, and, therefore, may slow their development.” But this tax raises billions of dollars, and revenue considerations usually trump sound tax policy. That’s why previous efforts to repeal it have failed.

Congressman Miller is correct when he says it is time to “hang up” on the Telephone Excise Tax.