It should come as no surprise that Congress has a lot of work to do to restore the confidence of the American people in our economy and its management of the federal budget. Growth has stalled, unemployment remains high and many Americans are concerned about making ends meet. The last thing consumers need right now are excessive and targeted state and local taxes on their wireless service.
Wireless service has become a top target for government revenue collectors. In my latest study, I’ve found that customers on average pay 16 percent of their wireless bill in federal, state and local taxes and fees — more than twice the average sales tax rate. Unfortunately, this problem is getting worse, not better.
From 2007 through 2010, the effective wireless tax rate grew three times faster than the tax rates for other goods and services. Consumers in 47 states now pay wireless taxes and fees that exceed the general sales tax rate, treating wireless service like a “luxury” good even though it has become a necessity for most consumers and is key to supporting small business growth and economic development.
Wireless and digital services facilitate everyday communication platforms like cell phones, the Internet and video, as well as more innovative services like medical monitoring and diagnostics that rely on wireless networks. Over the last 10 years, these services have noticeably increased our quality of life. Evolving technologies have essentially put computers in our pockets, providing access to new services and applications whether at home or on the go. Prices on these mobile devices have fallen due to competition and innovation, so now Americans across all socioeconomic levels can afford them. Congress wisely chose to allow a dynamic, competitive wireless marketplace to develop over the last 20 years, and now consumers are reaping the benefits.
These consumer benefits are threatened if we allow governments to impose excessive taxes and fees on wireless consumers. While some states have refrained from burdening consumers with new taxes, continuing budget shortfalls at the state and local level make wireless consumers a tempting target. Left unchecked, new wireless taxes could price out lower-income consumers from having wireless service altogether — threatening to derail affordable communications for the very people and businesses that have come to rely on it and need it most during these trying economic times.
Fortunately, there is legislation in Congress that would help stop new discriminatory taxes that threaten to make wireless service unaffordable around the country. On Tuesday, November 1, the U.S. House of Representatives overwhelmingly approved H.R. 1002, the Wireless Tax Fairness Act of 2011, with strong bipartisan support. This legislation will protect consumers with a five-year ban on new wireless taxes and fees.
Now that the House has acted, it is up to the Senate to protect consumers from excessive new taxes on their wireless service. The Wireless Tax Fairness Act of 2011 goes a long way in stabilizing an area of tax policy that has clearly gone astray. Wireless consumers should urge their U.S. senators to support this legislation to ban new discriminatory wireless taxes.
Scott Mackey is a national expert in state tax policy, testifying before Congress and state legislatures nationwide. He recently authored A Growing Burden: Taxes and Fees On Wireless Service, a report examining the excessive burdens on wireless consumers and highlighting the need for meaningful communications tax reform. The report is available here.