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Press Release

Tech Bytes – Tid Bits in Tech News: Ax the Telephone Tax, It’s Elementary


Hey, kids! It’s time for a U.S. history lesson and in the process, we’re going to test your reading comprehension skills. Please read this chronology of the Spanish-American War and tell us which line doesn’t make any sense:

February 24, 1895 Second Cuban Insurrection against Spanish rule begins.
August 26, 1896 Philippine Revolution against Spanish rule begins.
January 17, 1898 Concerned about rising violence and the safety of Americans in Cuba, American Consul-General Lee asks for U.S. naval ship to be dispatched to Cuba.
January 25, 1898 U.S. battleship Maine arrives in Havana.
February 15, 1898 Explosion sinks Maine in Havana harbor, killing 266 U.S. crewmen.
February 16, 1898 Congress passes telephone tax to fund possible military action.
April 22, 1898 U.S. Navy begins blockade of Cuba.
April 23, 1898 Spain declares war on U.S.
April 25, 1898 U.S. declares war on Spain.
May 1, 1898 U.S. Admiral Dewey wins Battle of Manila Bay in Philippines.
July 1, 1898 Teddy Roosevelt’s "Rough Riders" win Battle of San Juan Hill in Cuba.
August 9, 1898 Spain surrenders.
May 17, 2000 House Ways and Means Committee recommends repeal of telephone tax.
So, which line doesn’t make any sense? Well, if you answered “the last one,” you’re correct. The Federal excise tax on your telephone bill, currently 3 percent and included in general revenues to the Treasury, outlived its purpose more than 100 years ago.

In truth, this tax born in the shadow of war in 1898 has come and gone several times, and for most of its history the rate fluctuated until Congress voted in 1990 to make it permanent at 3 percent. Still, this year marks the third century in which Americans are paying a tax originally created to support a war which lasted less than five months. When you include other state and local taxes, that means that some callers and Net users are paying more than 20 percent of their phone bills in telecommunications taxes.

Of course, free market advocates would like to see the repeal of all telecom taxes at all levels. Just like other sales taxes, they’re regressive and they discourage the growth of the online economy. But as a modest beginning to reform, with the Feds running a massive surplus, it’s time to ax the Federal phone tax. I’m the last person to suggest that the government should use taxes to encourage or discourage certain habits like smoking or drinking.

But even if you believe in the role of excise taxes to give us a better society, do you really want to discourage phone calls and Internet usage? If you believe the tax system has a valuable role to play in social engineering, wouldn’t you want to give people a tax credit for embracing new technology?

More fundamentally, there’s an issue of accountability here. We shouldn’t use the telephone system, or any other private network, to collect taxes. We already have the I.R.S. to do that. Politicians who think the government needs more money should be forced to raise income tax rates and explain in the light of day why it’s necessary, instead of slipping obscure charges into the fine print on our various bills.

The telephone tax has done its job. It helped fund not only the Spanish-American War effort, but also U.S. forces in World War I, World War II and Vietnam. Now it’s time to give this tax an honorable discharge. The government doesn’t need the money and America doesn’t need a tax on talking.

Class dismissed.

James K. Glassman is the host of Tech Central Station.