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Press Release

    Telecommunications Taxes Widen the Digital Divide

    04/05/2000

    Few Americans would disagree that access to the Internet is crucial to success in the digital economy. Given this fact, the digital divide is certainly worthy of the recent attention focused on it by elected officials. Unfortunately, many government officials fail to recognize that taxes and regulations raise costs and limit the ability of consumers to afford online services. The politician's view of the Internet and the telephone as another means to raise taxes works against their goal of eliminating the digital divide.

    Excessive government taxation of telecommunication services is the greatest impediment to access of technology and further compounds the digital divide. Telephone taxes have increased 62 percent since 1986, and currently stand at rates equivalent to alcohol and tobacco taxes. These taxes have a drastic and direct impact on a consumer's ability and desire to go online.

    That is why Citizens for a Sound Economy is particularly supportive of the efforts of Senators Bill Roth and John Breaux and Representatives Rob Portman and Bob Matsui. Together they have introduced legislation in the Senate and in the House of Representatives to repeal one of most highly egregious examples among communications taxes - the federal excise tax.

    This tax costs Americans nearly $6 billion each year simply for keeping a phone in the house. Originally a means to fund the Spanish-American War, this tax is now used to fund everything from Mohair subsidies to congressional pensions. We won the Spanish-American War more than 100 years ago; yet, the wartime levy still exists - it's time we win the war against taxes that expand the so-called digital divide.

    A recent study by the Stanford Institute for the Quantitative Study of Society has confirmed CSE's position that eliminating taxes and regulations is the best approach the government can take to bridge the digital divide. The study found that demographics only account for 20 percent of the digital divide. Unfortunately, government efforts at bridging the digital divide have traditionally been designed to target specific demographic groups. This study indicates that these types of programs will not solve the problem. If government truly wants to get more people online the best solution is to lower the cost of going online. There are numerous free Internet Service Providers (ISPs), but a highly taxed phone line is needed to access these ISPs. By reducing or eliminating outdated and discriminatory taxes on communications the government could lower the cost of going online and take a huge leap forward in eliminating the digital divide.

    By imposing these regressive rates of taxation while simultaneously proclaiming the need to rapidly expand technology to all regions and income levels, government officials will only ensure that these taxes will hit hardest those who can least afford it. It is time that policymakers understand, as they look for ways to bridge the digital divide, the best way to give consumers the full benefits of high technology is by removing the high taxes and obsolete government regulations that are frontline barriers to getting online. A solid first step toward that goal would be to repeal the Federal Excise Tax.