Tech Fact #5 – No Net Taxes? Think Again!

Congress may have enacted a moratorium on new Internet taxes, but many Americans still pay a mighty high toll on their way to the Information Superhighway. A recent Progress & Freedom Foundation (PFF) study reveals that existing telecommunications taxes dramatically raise the cost of reaching the Internet.1

The federal government makes logging-on more expensive through three types of telecommunications taxes:

A federal excise tax, first enacted as a “luxury tax” to finance the Spanish-American War, raises more money than any other excise taxes, excluding those on alcohol and tobacco.

The Federal Communications Commission imposes $2.5 billion worth of taxes on telephone bills to subsidize Internet access for favored customers.

Long-distance customers also pay federally mandated “access charges” that serve as a revenue source to subsidize certain callers’ local telephone service.

States and local governments pile on with 37 additional types of taxes and fees, including gross receipts taxes, utility taxes, 911 fees, poison control fees(!?) and franchise fees. PFF calculates that the tax burden accounts for 16 percent of the local phone bill in the 20 highest-tax cities. Richmond has the honor of imposing the highest taxes – 36 percent of the local phone bill. Net surfers in Tampa, Chicago, Corpus Christi, Dallas, and Baltimore have 25 percent of their phone bill siphoned off as taxes.

Between 1986 and 1998, the total tax burden on telecommunications rose from 10.7 percent to 17.6 percent. Between 165,000 and 2.9 million households are priced out of the broadband market because of taxes.

Bad as these numbers sound, they come at a time when politicians and regulators express grave concern that poor, rural, and minority children lack affordable Internet access. Before governments enact any new subsidy programs, they should make the Net more affordable by reducing telecommunications taxes.

1Jeffrey Eisenach, “The High Cost of Taxing Telecom,” study prepared for presentation to the Advisory Commission on Electronic Commerce, Sept. 14, 1999.