Tech Fact #1 – From ‘Remember the Maine’ to ‘No New Taxes’: A History of the Telecommunications Excise Tax

The federal excise tax on telecommunications is an outdated and ineffective levy that harms consumers. First taken off the books in 1902, the telecommunications excise tax continues to resurface. Time and again public officials promise to end the tax on talking. For more than a century, these promises have been broken, forgotten or ignored.

1898 An excise tax on long distance telegraph and telephone service is introduced to finance the Spanish-American War. Consumers are taxed one cent for every call valued at fifteen cents or more.

1902 The tax is repealed.

1914 The tax is reenacted and applied to all long distance calls regardless of cost.

1914-1941 The tax is repealed and reintroduced several times.

1941 The Revenue Act of 1941 sets the telecommunications excise tax at 10 percent. The tax is extended to local telephone service shortly before America enters WWII.

1942-1943 The tax rate for toll telephone calls is 20 percent.

1944-1954 The tax rate for toll telephone calls is 25 percent. Other telephone services are taxed at 15 percent.

1965 The Excise Tax Reduction Act schedules the local and long distance tax rate to drop to 3 percent starting January 1, 1966, and to fall by one percent per year until it is eliminated.

1966 The Tax Adjustment Act of 1966 raises the tax to 10 percent, due to the war in Vietnam.

1970 The revised phaseout, scheduled to go into effect January 1, is deferred.

1973 A new phaseout, designed to cut the tax by 1 percent per year, goes into effect January 1.

1980 The Omnibus Budget Reconciliation Act of 1980 delays the full repeal of the tax by one year to January 1, 1983.

1981 The Economic Recovery Tax Act of 1981 delays repeal of the tax by two more years.

1982 The Tax Equity and Fiscal Responsibility Act of 1982 increases the rate to 3 percent and extends its termination date to January 1, 1986.

1984 The Deficit Reduction Act of 1984 delays the repeal by two more years.

1987 The Omnibus Budget Reconciliation Act of 1987 delays the repeal until January 1, 1991.

1990 The Omnibus Budget Reconciliation Act of 1990 makes the 3 percent tax permanent.

As Congress considers the first federal budget of the next century, a regressive tax from the last century should be eliminated once and for all. With the budget in surplus, the only legitimate proposal for this tax is for a quick elimination. The telecommunications excise tax takes more than $5.5 billion a year from consumers. It is a limit on communication – the basis of a free society and a healthy marketplace. Rather than seeking new ways to use this tax, Congress should abolish it once and for all.