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POLICY BRIEF FROM AMERICANS FOR TAX REFORM

Abolish the Telephone Tax

by Peter J. Ferrara

All Americans today pay a telephone excise tax equal to 3% of their monthly telephone bill.  Congress first adopted a telephone excise tax in 1898 to help finance the Spanish-American war.  The war ended within a year or so. One hundred years later, the telephone excise tax is still with us.

The tax is an object lesson in how supposedly temporary government programs and taxes, once adopted, never end.  For the telephone excise tax has been continued for 100 years now on one temporary excuse after another. The tax was actually phased out after the Spanish-American war, but was reimposed on long distance calls in 1914, and then fully reinstated to help finance World War I.  It was brought back to bolster government revenues during the Great Depression, and then to help pay for World War II and the Korean War.

In 1966, the tax was increased from 3% of telephone bills to 10% to help pay for the Vietnam war.  After the war it was phased down to 3%, and then extended repeatedly in the 1980s to help cover the deficit.  The tax was permanently set at 3% in the 1990 budget deal to close the deficit.  Now the deficit is long gone and the budget is in surplus, but the telephone tax is still with us.

The tax was originally adopted as a luxury tax on the rich, as only higher income people had phones 100 years ago.  Today, the tax is a regressive burden on low income workers, as it amounts to a much larger share of the meager incomes of the poor than of the rich.  Another lesson: taxes first adopted on the rich always end up being paid by the middle class, where the real money is.  Often , even the poor end up paying. The telephone excise tax imposes a total burden on the public of $5-$6 billion per year.  It is one part of the oppressive overall tax burden, which costs the average family more than food, clothing, and shelter combined.  Taxes overall take 40% of national income, which is far too high. There is no justification for the telephone tax and it should be repealed, as part of a broader, overall tax reduction program.