Over 95 percent of adult Americans own cell phones. But when these millions upon millions of people pay their wireless bills, only a fraction of the money they shell out each month actually goes to their mobile phone service. They’re paying far more than they bargained for, for things they didn’t agree to and arguably don’t need.
That’s because local, state, and federal governments, 911 systems, and even local school districts slip hidden taxes and fees to our cell phone bills that end up costing the average American cell phone consumer an extra 18 percent. So a monthly phone bill that ought to be $60 costs around $70.80. Every month.
Think about that for a second: $10.80 in your phone bill, every month, that’s not even going to your cell service. That’s $129.60 per year.
We’re all familiar with four largest cell phone service providers: AT&T, Verizon Wireless, Sprint and T-Mobile. These giants receive an estimated annual revenue of $126 billion from providing cell service. This is what we actually pay for voice, texting, email, and data services. On top of this, the 18 percent hidden tax adds up to a whopping $22.68 billion. That’s the GDP of a small country! And it comes straight out of the pockets of people like you and me.
And if the taxes on your cell bill add up to “just” 18 percent, you may actually be lucky. Residents in cities like Chicago and Baltimore have it far worse, shouldering hidden taxes as high as 35 percent!
Competition in the wireless industry has led to significant reductions in average monthly bills. But thanks to increases in government taxes and fees, the total cost of the average American’s cell phone bill has remained relatively static. For example, between 2008 and 2015, the average price of a monthly cell phone bill dropped from $49.94 to $46.64. But during that same time span, the tax rate increased from 15.5 percent to 18 percent.
Our nation’s tax system is founded on a progressive system, meaning the more money you make, the more you can afford to pay in taxes. Cell phone taxes do just the opposite, imposing a disproportionate burden on low-income individuals and families. Because the rates for cell phone taxes are universal—got a phone, pay the tax—people like students, lower income families, and the elderly are forced to pay a bigger share of their income. $129.60 a year in cell phone taxes means nothing to, say, Oprah. But for a recent college grad making $10 per hour, trying to pay off $100,000 in student loans, that’s a huge bit out of their cash flow.
So where, exactly, is all that extra money going? Good question. But it brings up an even better question: How does one find the answers, when cell phone taxes remain largely hidden?
Next time your cell phone bill shows up in the mail, take a good look at it. The federal 5.82 percent wireless tax is about the only tax that is consistent across all cell phone bills. But state and local governments use phone bills to ratchet up taxes and fees to insane highs — trying to decipher what they all are and who benefits from them is like trying to solve a Rubik’s Cube with six extra sides. In New York City, for example, a wireless customer could be paying up to 12 different taxes and surcharges. Imagine that your bill comes and this is what you see:
State Sales Tax: 4.00 percent
Local Sales Tax: 4.25 percent
MCTD Sales Tax: 0.19 percent
State Excise Tax (186e): 2.50 percent
MCTD Excise/Surcharge (165e): 0.30 percent
Local utility gross receipts tax: 1.49 percent
State wireless 911: 2.55 percent
Local wireless 911: 0.64 percent
MCTD surcharge (184): 0.07 percent
NY Franchise Tax (184): 0.38 percent
School District Utility Sales Tax: 1.50 percent
Universal Service Tax (Federal): 5.82 percent
Total Transaction Tax: 23.67 percent
Some of these items are relatively easy to explain. And some are intentionally nebulous so you need a magnifying glass to see the fine print.
New Yorkers have to pay a Metropolitan Commuter Transportation District (MCTD) tax to fund the MTA. That’s right; your monthly cell phone payment helps keeps the subway running. This tax (and a related surcharge) is just one of many that give New York the third highest cell taxes in the nation. If you live in the Big Apple itself, cell taxes run you an incredible 27 percent.
Most states (and some cities) impose 911 fees, supposedly to fund expenses for the 911 system and operations. Seems legit… if the money actually went where it was supposed to go. Take what happened in 2008, when Chicago doubled its wireless 911 fee from $1.25 to $2.50 per month. Why? To help fund its Olympic bid (yes, really). You remember the Chicago Olympics, right? Oh yeah, they lost that bid. Funny thing, though—that 911 tax never got reduced. In fact, it was increased a further 56 percent in 2014, causing Chicagoan’s phone bills to rise by $16.80 per phone line per year. The reason for the 2014 hike? To “save” pension funds for city workers (uh, what does that have to do with 911 services again?). The funds from the tax go straight into the Laborers’ Fund, and in its first year alone that increased 911 fee generated $110.8 million.
Take another look at that list of charges and taxes on the New York cell phone bill. Now understand that every single state has its own variation of that list. Some are longer, some shorter, but all of them have their own system for what gets taxed and how, as well as varying levels of transparency when it comes to where that money actually goes. So there’s not just one set of questions that need to be asked. There is, at minimum, one set of questions for every state in the union.
From “How Do I Tax Thee?” by Kristin Tate. Copyright © 2018 by the author and reprinted by permission of All Points Books.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.