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Capitol Comment

    Capitol Comment 240 - Taxpayer Double Whammy:

    06/15/1999

    Consumers of telecommunications services, advocates of smaller government, and ultimately, the U.S. Constitution are under attack by the Federal Communications Commission (FCC). Recently, the FCC not only unilaterally raised the federal telephone E-Rate tax (also known as the "Gore-tax" after its chief promoter Vice President Al Gore) by 73 percent, but it also took deliberate steps to block phone companies from identifying the tax on their customers’ phone bills.

    A policy that allows unelected bureaucrats to tax American consumers while censoring private companies that attempt to inform consumers about such taxes is not only unconstitutional, it is also a dangerous precedent for the unbridled growth of government.

    Such rogue behavior surely was not the intent of Congress when it passed the 1996 Telecommunications Act which, according to its preamble, was designed to "promote competition and reduce regulation." The Telecommunications Act created the E-Rate program in order to provide discounted telecommunications services to schools, libraries and rural health care providers. The funds for these subsidies are collected via a charge – the Gore-tax – on residential and commercial phone lines.

    There are two very troubling aspects to the Gore-tax. The first is the great lengths the FCC has gone to hide the tax from the view of consumers. The second, and more serious, issue is the fact that the unelected staff within a federal agency has assumed the right to increase a tax without congressional approval.

    How do you get away with an illegal tax? You hide it. If the FCC has its way, the Gore-tax will be hidden from customers’ view by two Orwellian FCC orders. First, phone companies would be forced to use standardized and government-approved language on bills sent to consumers. Second, if companies use the words "FCC, federal, required or mandated" to identify the tax on consumer bills, they would be subject to penalties from the FCC for using an "unreasonable practice."1 It’s hard to imagine Congress tolerating any other agency preventing an industry from providing its customers with vital information about the products or services that they buy.

    The E-Rate program has been under a cloud since its inception.2 The General Accounting Office (GAO) determined that the FCC had illegally established non-profit corporations to oversee the program.3 Further, the FCC has been embarrassed by public revelations of highly paid political appointees overseeing the program, delays in funding, and wasteful and fraudulent grants.

    Mismanagement aside, the Telecommunications Act did not give the FCC the power to establish or increase taxes on the American people. In fact, had the act attempted to delegate that power, it would clearly be unconstitutional. The Constitution delegates the power to tax solely to the Congress and it cannot be re-delegated to agencies or unelected bureaucrats.4

    The plain language of the Constitution was recently affirmed in federal court. On May 14, 1999, the 10th Circuit struck down air quality regulations promulgated by the Environmental Protection Agency (EPA) on the basis that the agency was implementing regulations not expressly approved by Congress. In American Trucking Association v. United States Environmental Protection Agency5 the court held that without a clear standard from Congress, the EPA could not constitutionally create and mandate rules and regulations. This need for a clear statutory standard is consistent with other Supreme Court decisions, such as Industrial Union Department v. American Petroleum Institute6 and J.W. Hampton v. United States.7 As in these cases, there is no clear statutory standard for the FCC to increase the Gore-tax by 73 percent.

    In light of these serious constitutional concerns, the FCC should seek statutory guidance from Congress on how to implement the universal service provisions – especially the E-Rate program – of the 1996 Telecommunications Act. A policy that allows unelected bureaucrats to tax American consumers while censoring private companies that attempt to inform consumers about such taxes is not only unconstitutional, it is also a dangerous precedent for the unbridled growth of government.

    The power to initiate and levy taxes cannot be delegated to the FCC. If Congress intended for this to happen, the FCC’s actions reveal it as an accomplice. If Congress did not intend to delegate this authority, then the FCC has pursued a rogue, unconstitutional path by hiding the E-Rate program behind schoolchildren to diffuse public scrutiny. The FCC should suspend the program until specific statutory guidance is provided.

    1FCC 99-72, at paragraph 56 where the Order declares, "In contrast, we would not consider a description of that charge as being "mandated" by the Commission or the federal government as accurate."

    2See also testimony of CSE counselor Jim Miller before the House Judiciary Subcommittee on Commercial and Administrative Law from February 26, 1998

    3See, for example, letter from GAO General Counsel Robert P. Murphy to Hon. Ted Stevens, February 10, 1998.

    4United States Constitution, Article 1, Section 8.

    51999 WL 300 618 (D.C. Cir. 1999).

    6448 U.S. 607 (1981).

    7276 U.S. 394 (1928).