The federal government is desperately out of date on telecom taxation. Not only are some of today’s taxes rooted in the politics of the 1800s, but the entire telecom tax structure is based on a set of assumptions that no longer apply.
The biggest of these is that telecom services represent an inexhaustible cash cow: Users won’t mind paying a little more on their phone bills, and telcos won’t mind cutting just a hair deeper into their profit margins. This has led to a scenario in which cash-strapped regulators find it easier to lard communications services with “extra fees” than fight the uphill political battle of raising taxes.
That’s how we got the Federal Excise Tax, which was enacted in 1898 to pay for the Spanish-American War, and has been charged to telecom users pretty much ever since.
The Senate Finance Committee is currently reviewing a proposal by Sen. Rick Santorum (R.-Pa.) to repeal the tax for good. Great idea, but don’t count on it happening any time soon. Santorum’s proposal is in reaction to a January suggestion by Congress of expanding the Federal Excise Tax to cover broadband and Internet services. Oh, and the IRS is hinting that the Federal Excise Tax should apply to VoIP, too. Seems the federal government just can’t get over the idea of skimming from the telecom till.
But that till is getting emptier, as telecom profits have definitely dropped precipitously over the past five years.
So regulators are digging ever deeper for their dollars, which brings us to the next point: the Universal Service Fund (USF). I’ve detailed the fund’s Byzantine architecture and incompetent oversight in previous columns. These days, VoIP advocates are steaming because in an FCC proposal submitted to the public for comment in August, Commissioner Robert Nelson calls for applying USF charges even more aggressively to VoIP providers.
I don’t think VoIP services deserve preferential treatment over traditional telephony service.
The problem isn’t that a bad tax is applied to VoIP. It’s that it’s applied at all.
For more than a century, the federal government has found it easy and convenient to tax telecom because the taxes were hidden in high cost and higher profitability. Now that disruptive technologies such as VoIP have slashed costs and cut deeply into profits, that model no longer works. If we want to fund initiatives like Universal Service, let’s say so – and pay for them up front.
