The Federal Communications Commission exceeded its authority when it levied a new tax on telecommunications services. Congress should terminate what has become known as the multi-billion dollar "Gore Tax."

The Telecommunications Act of 1996 required all telecommunications carriers to provide discounted rates for services provided to schools and libraries.[1]  The Act empowered the FCC to determine the discounted rate for inter-state services, and states to set the rate for intra-state services. Companies could use the value of the discounts to offset other legal obligations to contribute to programs providing telephone service for low income Americans.

Simply put, Congress required telecommunications providers discount their rates for schools and libraries, and empowered the FCC and the states to set the discount. However, as is too often the case in Washington, the agency seized on its new directive as an opportunity to create a vast new bureaucracy to connect schools and libraries to the Internet, funded with a special new tax.

The FCC decided that instead of merely setting a discount rate for service as the Act required, it would levy a new tax on telecommunications companies, and use the revenue to fund a new bureaucracy and hand out grants to schools and libraries to cover the costs of connecting these institutions to the Internet.

History of the "E-rate"

In January 1998, the FCC levied the new tax on telephone carriers, calling the new tax the "E-rate." The rate is determined on a company-by-company basis as a function of gross revenues from telecommunications services provided by each company. The Commission did this without any direct authorization from Congress: the Commission merely decided on its own that creating this new tax was necessary to comply with the law.

To disperse the funds, the Commission invented the Schools and Libraries Corporation and named Ira Fishman as its head. (Fishman is an old political ally of Vice President Al Gore.[2]) The General Accounting Office, the investigative arm of Congress, concluded that the creation of the SLC was in violation of the Government Corporation Control Act. In response to the GAO finding, the FCC folded the illegal SLC into the pre-existing Universal Service Administrative Corporation (USAC).[3]

The E-rate imposes a significant tax on telephone services, increasing costs to consumers between 5 and 6 percent, depending on a family\’s choice of telephone companies. In all, the SLC collected $1.66 billion during a one year period between 1998 and 1999. On May 5, 1999 FCC Chairman William Kennard announced plans to increase the amount collected to $2.4 billion in 1999-2000. The change in the e-rate amounts to a $700 million tax increase on every American with a telephone, without authorization from Congress.

When is a tax not a tax?

The FCC refuses to call the e-rate a tax. In typical Washington doublespeak, the Commission calls it a "mandatory contribution" to the government-created corporation that in turn passes out the grants. To keep the tax cloaked from consumers who ultimately must pay it, the Commission is poised to enact rules prohibiting telecommunications providers from listing the tax separately on its billing statements. In fact, the public controversy over the e-rate began when AT&T insisted it would itemize the tax on its customer bills.[4]

The e-rate meets every definition of a tax: it is imposed by government, it is paid by the private sector to a government-created entity, compliance is not voluntary, and it is not paid in direct exchange for a service. Today, the "e-rate" is better known as the "Gore Tax," named for its chief defender: Vice President Al Gore.

"Gore Tax" problems

Implementation of the Gore Tax has been a debacle. For example, it took the FCC more than 2 ½ years after the passage of the Telecommunications Act of 1996 for schools to begin receiving benefits. This delay can be directly attributed to the FCC\’s decision to create a new "middleman" to implement the program, rather than simply setting the rates for discounted services as called for by Sec. 254 of the Act. In addition, funds that could have been used to further discount services to schools and libraries are instead being used to support a new administrative bureaucracy within the USAC.

The federal government was already deeply involved with improving technology in schools and libraries when the Gore Tax was levied. Since 1995, federal funding for education technology has soared 2,304%, excluding the Gore Tax.[5]  More than twenty distinct federal programs, and countless state and local programs, support providing schools and libraries with upgraded technology. As a result, 78% of all schools were connected to the Internet by 1997, with an average of one computer available for every eight students.[6]

Recommendation: Support H.R. 692, the "E-Rate Termination Act"

Congress should terminate the Gore Tax by eliminating the portions of Section 254 of the Telecommunications Act that the FCC relies on in its stretched justification of the program. H.R. 692, sponsored by Colorado Representative Tom Tancredo, would achieve this.

The Gore Tax is a hidden tax paid by every American with a telephone, used to support redundant federal, state and local efforts to improve the technology available in schools. Congress should also consolidate existing federal programs aimed at providing technology benefits to schools, and consider turning the programs into a single block grant to the states.

The Gore Tax: The Vice President\’s Hidden Tax on your Telephone Service

Vice President Al Gore has his own tax. while some bureaucrats in Washington continue to call this surcharge on your telephone service by its "official" name: the "e-rate," to most of us this tax is known as the "Gore Tax."

No matter what it’s called, the "e-rate" is a new stealth tax on your telephone service, imposed to fund one of Al Gore’s pet projects: wiring schools to the Internet.

How the Gore Tax works

At the prodding of the Vice President, the Federal Communications Commission (FCC) imposed a new tax on telephone companies, based on customer usage. This new tax is an expansion of the federal "Universal Service Tax," originally imposed to help subsidize basic telephone service for low-income Americans.

Telephone companies don’t truly pay the tax: they merely collect the tax by passing the costs of the new tax on to consumers. In fact, the public controversy over the Gore Tax arose in 1998 when telephone companies insisted on itemizing the new tax on customer telephone bills. Bureaucrats at the FCC instead wanted the tax to remain hidden from consumers by rolling its costs into the overall prices charged for telephone service. Simply put: the federal government doesn’t want you to know that your phone bills are higher because of Al Gore’s new tax.

What does the Gore Tax cost me?

Depending on your telephone company, the rates you pay for service have increased between five and six percent, on average. The total amount the Gore Tax will cost consumers is expected to reach $10 billion by 2003.

How can you help stop the Gore Tax?

Republican Congressman Tom Tancredo of Colorado has taken the lead in the effort to kill and bury the Gore Tax. Tancredo’s bill, HR 692, would terminate the "e-rate," resulting in lower telephone bills for Americans across the board.

The bill’s original co-sponsors are: Cass Ballenger (R-North Carolina), Dan Burton (R-Indiana), Jay Dickey (R-Arizona), John Doolittle (R-California), J.D. Hayworth (R-Arizona), Thomas Petri (R-Wisconsin), George Radanovich (R-California), Jim Saxton (R-New Jersey), Pete Sessions (R-Texas), John Shadegg (R-Arizona), Bob Stump (R-Arizona), Tom Tancredo (R-Colorado), Charles Taylor (R-North Carolina), Mac Thornberry (R-Texas).

If your Congressman is not listed above, please contact him or her and let them know you support HR 692, the "E-Rate Termination Act."

For more Information

1. Telecommunications Act of 1996, Sec. 254 (1)b
2. "Fighting over the Kids," Wired Magazine, August 1998
3. USAC letter to members of Congress, January 12, 1999
4. National Taxpayers Union
5. Source: Congressional Research Service
6. Source: U.S. Department of Education