[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                     CELL TAX FAIRNESS ACT OF 2009

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 1521

                               __________

                              JUNE 9, 2009

                               __________

                           Serial No. 111-41

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
50-140 PDF                WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001








                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
BRAD SHERMAN, California             GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                    STEVE COHEN, Tennessee, Chairman

WILLIAM D. DELAHUNT, Massachusetts   TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina       JIM JORDAN, Ohio
BRAD SHERMAN, California             DARRELL E. ISSA, California
DANIEL MAFFEI, New York              J. RANDY FORBES, Virginia
ZOE LOFGREN, California              HOWARD COBLE, North Carolina
HENRY C. ``HANK'' JOHNSON, Jr.,      STEVE KING, Iowa
  Georgia
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel









                            C O N T E N T S

                              ----------                              

                              JUNE 9, 2009

                                                                   Page

                                THE BILL

H.R. 1521, the ``Cell Tax Fairness Act of 2009''.................     3

                           OPENING STATEMENTS

The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Chairman, Subcommittee on Commercial 
  and Administrative Law.........................................     1
The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Ranking Member, Subcommittee on 
  Commercial and Administrative Law..............................    10
The Honorable Jim Jordan, a Representative in Congress from the 
  State of Ohio, and Member, Subcommittee on Commercial and 
  Administrative Law.............................................    10
The Honorable Zoe Lofgren, a Representative in Congress from the 
  State of California, and Member, Subcommittee on Commercial and 
  Administrative Law.............................................    11
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.    12

                               WITNESSES

Mr. Robert D. Atkinson, Ph.D., President, Information Technology 
  and Innovation Foundation
  Oral Testimony.................................................    14
  Prepared Statement.............................................    16
The Honorable Mara Candelaria Reardon, Indiana House of 
  Representatives
  Oral Testimony.................................................    21
  Prepared Statement.............................................    23
Ms. Joanne Hovis, Columbia Telecommunications Corporation, on 
  behalf of the National Association of Telecommunications 
  Officers and Advisors, the National Association of Counties, 
  the Government Finance Officers Association, the United States 
  Conference of Mayors, and the Natiional League of Cities
  Oral Testimony.................................................    26
  Prepared Statement.............................................    28
The Honorable Joseph A. Gibbons, Florida House of Representatives
  Oral Testimony.................................................    32
  Prepared Statement.............................................    34
The Honorable Don Stapley, Maricopa County Board of Supervisors, 
  on behalf of the National Association of Counties, the 
  Government Finance Officers Association, the United States 
  Conference of Mayors, and the National League of Cities
  Oral Testimony.................................................    36
  Prepared Statement.............................................    39

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Federation of Tax Administrators, 
  submitted by the Honorable William D. Delahunt, a 
  Representative in Congress from the State of Massachusetts.....    63

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Robert D. Atkinson, 
  Ph.D., President, Information Technology and Innovation 
  Foundation.....................................................    77
Response to Post-Hearing Questions from the Honorable Mara 
  Candelaria Reardon, Indiana House of Representatives...........    80
Response to Post-Hearing Questions from Joanne Hovis, Columbia 
  Telecommunications Corporation, on behalf of the National 
  Association of Telecommunications Officers and Advisors, the 
  National Association of Counties, the Government Finance 
  Officers Association, the United States Conference of Mayors, 
  and the Natiional League of Cities.............................    84
Response to Post-Hearing Questions from the Honorable Joseph A. 
  Gibbons, Florida House of Representatives......................    88
Response to Post-Hearing Questions from The Honorable Don 
  Stapley, Maricopa County Board of Supervisors..................    93

 
                     CELL TAX FAIRNESS ACT OF 2009

                              ----------                              


                         TUESDAY, JUNE 9, 2009

              House of Representatives,    
                     Subcommittee on Commercial    
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 11:35 a.m., in 
room 2141, Rayburn House Office Building, the Honorable Steve 
Cohen (Chairman of the Subcommittee) presiding.
    Present: Representatives Cohen, Delahunt, Watt, Sherman, 
Lofgren, Scott, Franks, Smith, Jordan, and Issa.
    Staff Present: (Majority) Norberto Salinas, Counsel; Adam 
Russell, Professional Staff Member; and (Minority) Daniel 
Flores, Counsel.
    Mr. Cohen. This hearing of the Committee on the Judiciary 
Subcommittee on Commercial and Administrative Law will now come 
to order. Without objection, the Chair will be authorized to 
declare a recess of the hearing. I will now recognize myself 
for a short statement.
    In 2000, the National Governors' Association issued a 
report concluding that existing State and local 
telecommunications tax systems were inefficient, complex, and 
not competitively neutral. However, only some States have 
reformed their telecommunications tax policies, with many 
others possibly losing out on economic growth while costing 
their residents billions of dollars in taxes and fees.
    Most State and local tax policies do not reflect today's 
market for communication services, particularly the wireless 
industry. For example, some jurisdictions impose both a gross 
receipts tax and a general sales tax on wireless services. 
Others impose higher tax rates on wireless services when 
compared to other services. Still other States arguably 
discourage investments in telecommunications infrastructure by 
imposing excessive taxes on the telecommunications industry's 
capital investments.
    These forms of discriminatory taxation affect the 
pocketbooks of consumers. This has the effect of chilling 
investment and impacting interstate commerce.
    Having been a legislator, I am aware of the need for 
revenue and also the difficulties sometimes in catching up with 
technology.
    Today we hold a hearing on H.R. 1521, the ``Cell Tax 
Fairness Act of 2009.'' H.R. 1521 would impose a 5-year 
moratorium on any new discriminatory tax with respect to mobile 
services, mobile service providers, or mobile service property. 
The legislation would prevent increasing taxes imposed solely 
on wireless subscribers and wireless providers. More 
importantly, the 5-year moratorium would provide the 
telecommunications industry and the State and local governments 
the opportunity to come together and work on reforming the 
current communications tax structure. Doing so will maintain a 
steady stream of revenue for State and local governments while 
ensuring a fair tax burden among communications mediums, 
including wireless services.
    It reminds me of Lyndon Johnson: Let us come together.
    This hearing will provide Members of the Subcommittee the 
opportunity to hear testimony from State and local governments' 
reliance on taxes and fees on wireless services. Members will 
also hear testimony about how those taxes and fees impact 
consumers and wireless providers.
    Finally, Members will hear testimony about how important 
affordable access to wireless services is to the growth of 
broadband access in this country.
    This testimony should help us determine whether Congress 
should intercede with this legislation. I am cognizant of the 
current plight that State and local governments are 
experiencing vis-a-vis revenue. They are all cash strapped and 
I can sympathize with their concerns. They receive lower 
revenues but still are expected to provide essential services.
    This legislation is not intended to affect current State 
and local Government revenues. In fact, H.R. 1521 will not 
prevent taxing authorities to continue to tax wireless services 
and providers. It merely imposes a short moratorium on certain 
new discriminatory taxes. We need fair tax policies to 
encourage capital investment to help consumers.
    Accordingly, I look forward to today's testimony.
    I now recognize my colleague, the distinguished Ranking 
Member of the Subcommittee, Mr. Franks, for his opening 
remarks.
    [The bill, H.R. 1521, follows:]
    
    
    
    Mr. Franks. Thank you, Mr. Chairman. Mr. Chairman, I would 
like to start by thanking the Chair for holding this hearing. I 
really appreciate what you are doing today. Today's hearing is 
the second in less than a year on this topic.
    H.R. 1521, the Cell Tax Fairness Act of 2009, has 112 
cosponsors in the 111th Congress. This is a nearly identical 
amount of support to a similar bill in the 110th Congress. Mr. 
Chairman, I am honored to be one of those 112 sponsors, as I 
know you are. And I hope that with your leadership and that of 
Ms. Lofgren, we can have a markup of this legislation in the 
near future.
    I support the legislation because it is my belief that 
States and localities unfairly burden cell phone consumers with 
excess taxes. Nationwide, the average tax on wireless service 
is 15.19 percent, which is more than double the average sales 
tax rate for all businesses, which is 7.07 percent. These tax 
rates are more in keeping with sin taxes; that is, taxes on 
alcohol and tobacco, than with general business taxes.
    It is my understanding that these taxes on the wireless 
industry are estimated to be over $15 billion a year. That is 
an astonishing number, and something that warrants the 
attention of the Subcommittee.
    I know that discrimination, at least in this context, is 
often in the eyes of the beholder. However, by any definition 
imposing taxes on a wireless procedure that are more than 
double what general businesses pay should be considered 
discriminatory.
    I will also continue to oppose discriminatory taxes or 
excise taxes that are imposed by States that excessively punish 
individual industries. I strongly believe that consumers should 
be the ones to pick winners and losers and not government.
    And finally, I am heartened to see the two State 
representatives testifying today because I know that many 
States are hurting financially. My State is currently trying to 
close a $3 billion deficit, and I respect those concerned about 
this bill's effect on State revenues. However, this legislation 
merely freezes current tax structures on wireless services for 
5 years, and I believe that is a worthwhile purpose and one 
that will benefit consumers and technological advancements in 
the long run.
    And Mr. Chairman, I would like to welcome one of the panel 
members especially today. Don Stapley is a member of the Board 
of Supervisors in my county, and he is a good friend, and I 
appreciate him being here. He is a little bit disoriented on 
this legislation today, but that is all right. We understand. 
That can happen even to people from Arizona. But I am very 
grateful for him showing up here.
    And with the Chairman's permission, I would like to yield 
the balance of my time to Mr. Jordan for a brief opening. He 
just wants to go 60 seconds.
    Mr. Jordan. I thank the Ranking Member. And I want to also 
thank the Chair and Ms. Lofgren for sponsoring this 
legislation. I have to go to an Ohio delegation meeting here at 
noon, so I won't be able to stay for much of the testimony.
    I just want to say that I appreciate that this bill is 
being brought forward. I am a cosponsor and, like the Ranking 
Member indicated, it is good to see some State legislators here 
who support this legislation as well. I understand that tax 
fairness is important, particularly in this area. So with that, 
I would yield back the balance of my time and thank the Ranking 
Member for yielding.
    Mr. Cohen. Thank you. I would now like to recognize the 
distinguished lady from California, who is a sponsor of this 
legislation, if she would like to make some remarks. Ms. 
Lofgren.
    Ms. Lofgren. Thank you, Mr. Chairman, and I very much 
appreciate that you have scheduled this hearing today.
    I introduced this bill because I believe that wireless 
services and mobile devices are increasingly essential to 
affordable broadband access in the United States.
    Now, there is no doubt that expanding broadband speed and 
access should be a national priority. We rank 15th out of 30 
members of the OECD in broadband adoption per capita. So we 
have a lot of catching up to do. Only about half of American 
households have access to broadband, most to relatively slow 
service, especially compared to what is widely adopted in other 
countries like South Korea and Japan.
    President Obama has recognized the imperative of building 
broadband capacity. The FCC is developing a comprehensive plan 
for national broadband as mandated by the stimulus legislation 
Congress passed a few months ago. Broadband Internet is a 
critical infrastructure. Just like highways or ports through 
the power grid, it is essential to daily life and to future 
economic growth.
    We have come quite a long way with wireless, but this is 
still an emerging technology, and we have a long way to go. In 
the first quarter of 2008, 37 percent of U.S. mobile 
subscribers paid for access to the Internet, and 15 percent 
used it at least one a month. Now use of the new spectrum from 
the 700 megahertz auction and the deployment of 4G networks are 
just beginning. These technologies have tremendous promise, not 
just faster Internet access, but also lots of new innovative 
applications.
    Anyone who spent even a few minutes looking at applications 
on the iPhone, my favorite toy, has caught a glimpse of what 
the future might hold. And we can't let discriminatory tax 
policies deter innovation.
    Now wireless is increasingly important to Internet access 
for working class and lower income Americans, and that makes a 
lot of sense. Cell phones have become an essential tool in life 
for nearly everyone. If you are well off, you can afford 
multiple Internet connections, such as cable and DSL at home. 
But if you don't have as much money, you might rely on what you 
can get on your phone.
    Wireless users earning $20,000 to $40,000 a year access 
mobile data applications more than users earning $100,000 a 
year. And 39 million wireless subscribers have incomes of less 
than $25,000 a year. Wireless is also crucial to extending 
broadband to underserved rural areas. According to the FCC, at 
the end of 2007 wireless broadband was the most widely 
distributed of all Internet connection technologies. Ninety-
four percent of all ZIP codes have it.
    Despite the importance of wireless services, they face a 
disproportionate and growing tax burden. The average wireless 
customer pays 15.2 percent in Federal, State and local taxes 
and fees as opposed to 7.1 percent for other goods and 
services. Taxes on cell phone service have gone up four times 
faster than taxes on other goods and services between 2003 and 
2007. These discriminatory tax rates will discourage both 
consumer spending and industry investment in more advanced 
wireless services like faster mobile data.
    The 5-year moratorium in this bill will spur investment in 
the near term. It will also encourage State and local 
governments to harmonize and modernize their taxes in the 
longer term. We have a similar moratorium on Internet taxes 
that has spurred investment and innovation on the Internet.
    These taxes are also regressive. This is not only because 
lower income Americans rely more on their cell phones, the 
taxes themselves are often highly regressive such as per line 
flat fees.
    I do recognize the concerns of State and local governments 
and until this year I had actually spent more time on the Board 
of Supervisors in Santa Clara County than I had in the House of 
Representatives. I know that times are tough, and I am very 
sensitive to the concerns of State and local officials. 
However, this bill would not affect existing taxes. It only has 
to do with new discriminatory taxes, taxes put in place after 
enactment. And it would also not prevent States and 
municipalities from raising taxes on wireless services unless 
the taxes were discriminatory. So if you have a tax that you 
are adopting on everything, wireless would not be exempted.
    Now, I respect the autonomy of States and localities. But 
when you have a nationwide need to deploy broadband as we do, 
we can't allow local tax deployment plans to really interfere 
with that national goal.
    So I am grateful for this hearing, Mr. Chairman, and I look 
forward to hearing from the witnesses, and I yield back the 
balance of my time.
    Mr. Cohen. Thank you, Ms. Lofgren. I would now like to 
recognize the Ranking Member of the full Committee, a lion from 
the State of Texas, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Chairman, first of all, thank you for having this 
hearing today on such an important piece of legislation, and I 
would also like to thank our colleague on the Judiciary 
Committee, Ms. Lofgren, for introducing H.R. 1521, the Cell Tax 
Fairness Act of 2009, of which I am an original cosponsor.
    There are now 112 cosponsors of this bill, Republicans and 
Democrats alike, including many Members of this Committee. That 
is a strong indication of the popular support that this 
legislation enjoys.
    It has become clear to me that telecommunications firms and 
consumers, and in particular wireless services, are taxed 
higher at the State level than many other businesses. In our 
increasingly mobile economy, we should encourage the deployment 
of cell phone and wireless devices, not inhibit their use 
through higher taxes. The fact that these devices facilitate 
interstate commerce certainly gives the Congress the authority 
to constrain the States' taxing authority. However, just 
because Congress has the authority to do something does not 
necessarily mean that it should exercise that authority in 
every case.
    The taxing power has traditionally been within the 
jurisdiction of the States. And given the state of our economy, 
I sympathize with States' concerns about losing revenue because 
of congressional intervention. However, I also know that 
promoting mobile telecommunications is one way to increase 
American commerce and generate American jobs. This bill is 
specifically written to prevent discriminatory taxes after the 
date of enactment. Any taxes already in effect will remain 
untouched. So States will not lose any revenue as a result of 
this proposal.
    I do look forward to hearing from all of our witnesses to 
see how we can balance the problem of disproportionate taxation 
of telecommunications firms and consumers against the needs of 
States' treasuries. Unfortunately, since I won't be able to 
stay much longer at this hearing because of a previous 
commitment, I do have some questions that I will submit for the 
record, but I want to mention those questions now in hopes that 
the panelists might address them.
    One, are wireless taxes regressive, and do they 
disproportionately impact lower and middle income consumers? 
Two, does the bill limit States rights? And three, if Congress 
passes this legislation, what impact would it have on State and 
local revenues, on consumers, and on wireless service 
providers?
    Mr. Chairman, thank you and I will yield back.
    Mr. Cohen. Thank you, Mr. Smith. If there are no other 
statements from the Members, I am pleased to introduce our 
first witness, and we introduce the witnesses before their 
testimony. I want to thank each witness on the front end for 
participating. Without objection, your written statement will 
be placed in the record and we would ask you to limit your 
remarks to 5 minutes. We have a lighting system that shows 
green when you are starting and you are somewhere in between 
the first 4 minutes, and yellow means you have got a minute to 
go and red means you need to close.
    After each witness has presented his or her testimony to 
the Subcommittee, Members will be permitted to ask questions. 
They also have a 5-minute limit.
    Our first witness is Mr. Robert D. Atkinson. He is the 
Founder and President of Information Technology and Innovation 
Foundation, a Washington, D.C.-based technology policy think 
tank. He is also the author of State New Economy Index series 
and the book, The Past and Future of America's Economy: Long 
Waves That Power Cycles of Growth.
    He has an extensive background in technology policy, has 
conducted groundbreaking research projects on technology and 
innovation, is a valued adviser to State and national policy 
members, and a popular speaker on innovation policy nationally 
and internationally. Before coming to ITIF, Dr. Atkinson was 
Vice President of the Progressive Policy Institute and Director 
of that institute's Technology and New Economic Project.
    Previously Dr. Atkinson served as the first Executive 
Director of the Rhode Island Economic Policy Council, a public-
private partnership, including as members the governor, 
legislative leaders, corporate, and labor leaders. And prior to 
that he was Project Director of the former Congressional Office 
of Technology Assessment. He has testified several times before 
Members of Committees of Congress, so he knows what to expect. 
He has appeared at various news outlets, including CNN, 
FoxNews, MSNBC, NPR, and NBC Nightly news.
    Thank you, Dr. Atkinson. I am looking forward to your 
testimony. I am always amazed at people who have think tanks. 
It is better than the other tanks, and 'tank' you for being 
here as you begin your testimony.

TESTIMONY OF ROBERT D. ATKINSON, Ph.D., PRESIDENT, INFORMATION 
              TECHNOLOGY AND INNOVATION FOUNDATION

    Mr. Atkinson. Thank you, Mr. Chairman. We are certainly a 
think tank, not a do tank. So we think about things. And thank 
you also, Mr. Franks, for the opportunity to be here today to 
talk about the impact of discriminatory taxes on wireless 
telecommunication services and on economic growth.
    It is clear from looking at the evidence from a wide array 
of economists that the U.S. economy has been transformed in the 
last 15 years by information and communications technologies, 
including wireless communications. One of the reasons why U.S. 
productivity growth has been so strong compared to the prior 
period there is a clear consensus among economists that it is 
due to the IT revolution. What is also important is that 
innovation in IT continues to emerge. We see that in 
Congresswoman Lofgren's example of the iPhone. But that is the 
tip of the iceberg. We are going to see a whole wide array of 
new wireless uses. This is not a bill about cell phones alone. 
This is about a revolution that is occurring in the U.S. 
economy where wireless devices and wireless services are going 
to be ubiquitous. And one of them, but certainly not the only 
one, is going to be wireless broadband.
    We are poised to see the deployment of new technologies in 
the next, really the next 12 months of what is called 4G, where 
you will get services of up to maybe 60, 70 megabits per second 
on a wireless device. This now provides the opportunity for 
what we call a third pipe going into the home and importantly a 
new opportunity for people who might not have been able to 
access broadband, particularly rural residents or lower income 
residents.
    When you look at taxation, there are basically three 
principles of optimal taxation. One, it should induce little 
change on consumer behavior. Secondly, it is not borne 
disproportionately by low-income individuals, and, third, it is 
not placed disproportionately on activities with positive 
externalities. Unfortunately, discriminatory taxes on cellular 
telecommunications violate all three principles.
    There is an argument that opponents of the bill make that 
this doesn't affect wireless adoption. It may not affect 
consumers getting a cell phone. It is clear that most consumers 
value that and have to have it. But what it does affect is 
consumers getting ancillary services, buying more minutes, 
getting broadband on wireless, getting a whole array of other 
things. And there have been several academic studies that show 
this quite clearly.
    Rappoport, Alleman and Taylor found that for every new 
dollar of discriminatory tax on wireless services, expenditures 
by consumers go down by $1.60. Ingraham and Sidak found 
slightly lower numbers, $1.23 to $1.29 negative elasticity. In 
other words, consumers spend less.
    In thinking about broadband and wireless broadband, Austan 
Goolsbee when he was at the University of Chicago, Dr. Goolsbee 
is now at the CEA, he found that actually it is much bigger for 
broadband, with a $2.75 negative elasticity. So a $1 tax on 
wireless broadband reduces the consumption of that service by 
$2.75.
    Not only that, but Goolsbee's work has shown that taxes on 
wireless don't just affect the consumer side. They affect the 
producer side and will reduce deployment, particularly in 
slightly high cost areas.
    Secondly, these have discriminatory effects on individuals 
based on income. In one study, Rappoport, Alleman and Taylor 
found that low-income individuals were as likely to adopt 
cellular Internet service and wireless Internet services as 
high-income individuals. So essentially this is not something 
that just high-income people are getting and we can justify a 
tax that way which may be legitimate, but that is not what is 
happening here. Low-income people are big users of this. And 
importantly, as GAO noted in a recent report, price is a 
barrier to adopting broadband services. A recent study by the 
Pew Internet and Society found that 35 percent of dial-up users 
say the major reasons for not switching to broadband is price.
    Thirdly, again really I think the key point here, is that 
this is a service, a wireless service as well as IT in general, 
has what economists call large positive externalities; in other 
words, what a consumer does with this device doesn't just 
benefit the consumer, it benefits all consumers. It benefits 
businesses. It benefits government.
    And there are several reasons for that. One is a 
traditional notion of what are called network externalities. In 
other words, as each individual user is able to use one of 
these, other people are--it makes it easier and beneficial for 
other people to use this.
    Again a study by Austan Goolsbee and Klenow found that 
there are these positive externalities, and in neighborhoods 
where they are controlling for income and all these other 
factors in neighborhoods where more people are using broadband, 
it makes it easier for other people to use broadband. And the 
reason is when some people in a neighborhood use it, other 
people know about it. They talk about it and so there is this, 
as I said, positive externality.
    How much is that positive externality? Igraham and Sidak 
found that every dollar of tax on wireless services, national 
economic welfare falls by $1.23 to $1.95. So in other words, 
adding $1 reduces overall economic welfare by $1.23 to $1.95.
    Hausman at MIT found slightly smaller numbers, between 72 
cents and $1.14 loss. So again either number you use those are 
quite significant.
    Finally, the numbers on broadband are even higher. Goolsbee 
finds that it is anywhere around $3.55 national welfare loss.
    I will just close by saying having worked for a governor 
before in my past, I understand the issue of States and their 
rights here. But this is an issue where essentially what States 
do impacts the country as a whole. State taxes benefit the 
State. They hurt the entire country, which to me is a reason 
for Congress to act on this.
    Thank you, very much.
    [The prepared statement of Mr. Atkinson follows:]
                Prepared Statement of Robert D. Atkinson
    Mr. Chairman, Mr. Franks, and members of the Committee, I 
appreciate the opportunity to appear before you today to discuss the 
impact of discriminatory taxes on wireless telecommunications services 
on economic growth and opportunity.
    I am president of the Information Technology and Innovation 
Foundation. ITIF is a nonpartisan research and educational institute 
whose mission is to formulate and promote public policies to advance 
technological innovation and productivity. Recognizing the vital role 
of technology in ensuring American prosperity, ITIF focuses on 
innovation, productivity, and digital economy issues. I have studied 
and written extensively about the issues of information technology and 
broadband and their effects on economic growth and societal 
improvement.
                 importance of wireless communications
    In the last 15 years, the U.S. economy has been transformed by 
information and communications technology (IT), including wireless 
communications. One result has been a significant increase in U.S. 
economic productivity, with most economists agreeing that the increase 
was due to the IT revolution.\1\ And as a key component of the IT 
revolution, wireless technologies have contributed to that growth.
    Moreover, innovation in the IT industry is continuing, with changes 
in the wireless industry being among the most rapid. The development of 
the Apple iPhone, and the introduction of similar offerings by 
competing cell phone manufacturers, is but the most recent and visible 
manifestation of this flourishing of innovation. Increasingly 
businesses are using wireless technology to become more productive and 
innovative, with everything from tracking inventory, to monitoring the 
performance of their business on a real-time basis, to enabling mobile 
workers to be connected. Consumers are using wireless for an 
increasingly diverse and novel range of purposes, from health 
applications like remote monitoring of diabetes to financial 
applications like mobile banking and peer-to-peer payments.
    In addition, more and more parts of the United States have access 
to advanced 3G wireless services, and the rollout of advanced next 
generation 4G services, such as Wi-Max and LTE, is proceeding. These 
next generation services are important not just because they will 
continue to serve as a platform for robust innovation in mobile 
services and applications, but also because they offer the promise of 
enabling the entry of a third broadband ``pipe'' to the home (to 
compete with cable modem and DSL/fiber service). This new pipe offers 
to not only bring additional competition and consumer benefits to all 
Americans, but also to provide broadband services in some rural areas 
that now cannot access wired broadband services. In addition, because 
wireless broadband may provide lower priced broadband in all areas, it 
has the potential to help lower-income Americans who to date have not 
previously subscribed to broadband. In short, wireless services promise 
to be a growing and more important part of the IT ecosystem in the 
United States.
    It is in this environment of innovation and digital transformation 
that your Committee considers legislation to ban new discriminatory 
taxes on wireless services. Imposing discriminatory taxes on wireless 
services is in essence taxing one of the major engines of U.S. 
innovation and economic growth, and as discussed below has significant 
impacts on economic growth and economic fairness.
    Principles of Optimal Taxation: Many tax economists suggest that 
there are three principles of optimal taxation of commodities. An 
efficient commodity tax: 1) induces little change in consumer behavior; 
2) is not borne disproportionally by low income individuals and 
households; and 3) is not placed disproportionally on activities with 
strong positive externalities. Discriminatory taxes on cellular 
telecommunications violate all three principles. I will examine each 
principle.
     discriminatory taxes on wireless services reduce consumer use
    Opponents of federal legislation to ban the introduction of new 
discriminatory taxes on wireless services argue that the rapid growth 
in cellular telephone subscriptions suggests that the higher taxes on 
cellular service have no negative impact. And they point to the rapid 
growth of cellular telephone service. But the major impact of 
discriminatory taxes is not on the decision to buy or not buy a cell 
phone (although for some individuals this may be the case). Rather, it 
is on the consumption of wireless services, with individuals facing 
higher taxes purchasing plans with fewer minutes and fewer services. 
And for a whole host of other services which are not as necessary, as 
of yet, to daily life, discriminatory taxes reduce not only use but 
adoption of these services. These include wireless data services and 
wireless Internet.
    Scholarly studies find that the impact of price (of which taxes are 
a component) on wireless expenditures is quite high. Rappoport, 
Alleman, and Taylor found that for the average monthly U.S. consumer 
expenditure on cell phone service ($52 per month),\2\ every dollar of 
additional tax reduces expenditures by more than $1.60.\3\ Ingraham and 
Sidak find slightly lower, but still high, elasticities of demand of 
between $1.23 and $1.29 (in other words, increasing taxes on wireless 
services by $1 reduces consumption of the services by between $1.23 to 
$1.29).\4\
    Because wireless data services, including broadband Internet 
access, are an even more discretionary purchase for most consumers, the 
impact of taxes on wireless data and broadband are likely even higher. 
Indeed, Austin Goolsbee finds the elasticities for broadband to be 
between 2.15 and 3.50, with an average of 2.75. In other words, 
increasing taxes on wireless data and Internet services by $1.00 
reduces consumption of these services by an average of $2.75.\5\
    This very high impact of taxes on consumer demand also affects 
producer decisions on where to deploy services. As the GAO reported, 
one of the most important factors for companies considering deploying 
broadband to an area was the expected demand for broadband service.\6\ 
Since adoption rates drive demand, not only do wireless taxes affect 
the ability of citizens to afford wireless Internet access, but they 
could also discourage some companies from deploying 3G and 4G systems. 
This conclusion is supported by research by Goolsbee who found that 
``in several medium sized markets, applying a tax on broadband would 
have reduced the potential producer surplus enough that suppliers would 
not be able to cover their fixed costs and would choose to delay the 
diffusion of broadband in those markets.'' \7\
                distributional impacts of wireless taxes
    It might be one thing if discriminatory wireless taxes affected 
mostly demand from higher income consumers. But of all advanced 
information technology and communications services, wireless is one of 
the most widely adopted services, with wireless services much more 
evenly distributed among income groups than fixed broadband. Rappoport, 
Alleman, and Taylor find that while the highest income Americans 
($100,000 or more in annual income) adopted fixed broadband at 125 
percent the rate that the average income American adopted a set of 
telecommunications and computing products (PCs, Internet, Broadband, 
Mobile, Internet ready PCS and PCS Internet Subscriber (in 2003), 
mobile phone adoption was only 40 percent higher while mobile Internet 
use was just 44 percent higher. In other words, low income households 
were almost as likely to adopt wireless services as higher income 
households. Moreover, when examining just adoption of Internet-enabled 
cellular services (as opposed to all the listed services and products), 
low-income households (less than $15,000 per year) adopted the service 
at about the same rates as high income households.
    Because low income households are almost as likely to subscribe to 
wireless services as higher income households, discriminatory taxes on 
wireless services are more regressive than many other kinds of taxes. 
And because of the structure of many of these taxes, the distributional 
impacts are even worse. When some jurisdictions (like Baltimore, MD for 
example) impose surcharges on service, the tax is not proportional to 
use, but is the same on all users, regardless of income or use.
    These discriminatory taxes play a role in limiting wireless data 
and broadband adoption, particularly among low income households. As 
GAO reported, the ``price of broadband service remains a barrier to 
adoption of broadband service for some consumers'' and noted that 
``households with high incomes were 39 percentage points more likely to 
adopt broadband than lower-income households.''8 Likewise, the Pew 
Internet and Society project found that just 25 percent of low income 
Americans with less than $20,000 annual income subscribe to broadband 
services, compared to 85 percent of households with over $100,000 in 
income.9 Moreover, over one-third (35 percent) of dial-up users say 
that price is the major reason for not switching to broadband.10 
Raising the price of wireless broadband service through discriminatory 
taxes will slow adoption of broadband, particularly as it's likely that 
for many low income households in the future, wireless will be an 
important means of accessing the benefits of the Internet.
       impact of discriminatory wireless taxes on economic growth
    Telecommunications taxes have been high historically because states 
and localities could tax these with little fear of losing revenue to 
consumers shifting their expenditures. For example, high retail sales 
taxes could induce residents to shop in nearby jurisdictions with lower 
rates. In contrast, taxing services that people consumed in their homes 
was seen by states as a more reliable way to raise revenue. This is one 
major reason why telecommunications services is in most jurisdictions 
taxed more heavily than other goods or services.
    This may once have made sense at a time when the principal 
telecommunications service consumed by people was ``plain old telephone 
service.'' But it certainly makes no sense now when telecommunications 
services, including wireless, are key drivers of the digital economy. 
In fact, many jurisdictions, especially the states and the federal 
government, recognize that it is a driver, and are investing public 
funds to promote it.
    One of the reasons why governments are investing in digital 
communications technologies, including wireless, is because they 
exhibit what economists call positive externalities (an externality 
occurs when the impacts of decisions by producer or consumers spill 
over to the broader economy.) One of the most important externalities 
from wireless services is network externalities. Network externalities 
are the effects on a user of a product or service of others using the 
same or compatible products or services. Positive network externalities 
exist if the benefits are an increasing function of the number of other 
users. In this case a good becomes more valuable to individual 
consumers as others also purchase that good. The classic example is 
telephone service, which becomes more valuable to a user if more people 
are connected. Indeed, telephone network externalities have long been 
recognized and have been a major rationale behind universal service 
policies. The same kind of externality exists with wireless telephone 
service. But externalities from wireless broadband are likely to be 
even more significant, in part because broadband enables new services 
to emerge that will benefit broadband users.
    There are two kinds of network externalities from broadband, direct 
and indirect. Direct externalities relate to subscribership. Just as 
the fax system became more valuable when more people had faxes, 
broadband becomes more valuable when more people have broadband; the 
more likely others are to subscribe. This is in part because the 
decision to purchase broadband is dependent in part on having 
sufficient knowledge about it. Unlike a service like haircuts or a 
product like TVs that most people are familiar with and can accurately 
value, fewer people are familiar with wireless data and Internet 
services and cannot always value their benefits.
    Empirical evidence suggests that this is a factor that affects 
subscribership. Goolsbee and Klenow found that people are more likely 
to buy their first computer if they live in areas where a high 
proportion of households own computers or if a high fraction of their 
friends and family own computers--even controlling for other factors 
affecting computer ownership. If ownership rates are 10 percent higher 
in one city than another in a given year, the gap will be 11 percent 
the following year, assuming all else stays constant.\11\ They explain 
this effect on the basis that the number of experienced and intensive 
computer users creates a ``spillover'' effect for non-users. They 
conclude that the effect is most probably related to the use of e-mail 
and the Internet--consistent with the view of computers being the hub 
of an information and communications network. But it is also likely to 
be related to the fact that people who have friends and neighbors with 
broadband are more likely to be able to better understand its value. 
While dial-up connections also enable network externalities for 
applications like email, only wireless broadband would generate them 
for mobile applications. Moreover, these externalities are likely to be 
higher in lower-income neighborhoods where individuals may have less 
familiarity with these technologies.
    Indirect network externalities from broadband relate to its effect 
on applications and content that requires broadband transport to work 
effectively. One reason why broadband take-up is not higher is because 
data-rich applications that could be accessed over broadband have not 
developed faster. Why develop mobile applications, especially ones that 
need moderate- to high- speeds, when very few people would be able to 
access them? This ``chicken-or-egg'' issue slows deployment of wireless 
broadband. More data-intensive applications would make mobile broadband 
more valuable, while more mobile broadband subscribers would make data-
intensive applications more commercially viable. Indeed, more mobile 
broadband would spur the development of a whole host of new 
applications that are not viable now.
    The second major kind of broadband externality relates to the fact 
that broadband enables consumers to become more efficient, thus in turn 
driving higher rates of productivity and economic growth. In the old 
economy producers produced and consumers consumed. Producers invested 
in new capital equipment to produce goods and services more efficiently 
and consumers in turn bought these cheaper goods and services. This 
dichotomy between producers and consumers is blurring in the new 
digital economy where a whole host of digital tools are enabling 
consumers to become, in the words of futurist Alvin Toffler, 
``prosumers'' who act at the same time as both consumer and producer.
    Whether it's conducting mobile banking, getting real time 
information on traffic conditions, or engaging in e-government 
services, mobile Internet is enabling self-service and becoming an 
important share of the economy, helping to boost productivity and to 
increase consumer convenience. Indeed, with the service sector now 
accounting for over 80 percent of employment, prosumerism will simply 
have to play a much larger role if we are to continue to boost incomes 
and economic growth. Wireless broadband promises to be a key technology 
for boosting prosumer productivity.
    Wireless Internet is also improving Americans' quality of life. For 
example, using a wireless data reader that connects to standard 
telephones, patients can securely transmit the medical data recorded by 
these medical devices to their health care provider. Their physicians 
can then review the patients' health information remotely, thereby 
reducing the number of office visits, a major benefit for patients with 
chronic diseases or who need frequent care. Similarly, obstetricians 
can remotely monitor the blood pressure and fetal heart beat of their 
patients at home, rather than requiring the patients to be admitted to 
the hospital.\12\ Wireless is also helping older Americans minimize the 
risks associated with solitude. Currently, for example, older adults 
and individuals with disabilities can use a personal emergency response 
system so that with the push of a button they can call for medical 
assistance. Personal emergency response devices typically consist of 
two components: a wearable wireless transmitter and a telephone unit 
that connects to an emergency response center. Such devices can 
particularly help adults who are at risk of a stroke or falling live 
independently. They can also save money by reducing the length of time 
for inpatient hospital care or nursing home care.
    Economic studies of the impact of taxes on wireless service support 
this argument that reduced wireless activity will have negative 
economic impacts. Ingraham and Sidak find that for every $1 of tax, 
national economic welfare falls by between $1.23 and $1.95, depending 
on the level of the tax existing in a jurisdiction (if a state with 
already high taxes on wireless service increases taxes even more, the 
overall economic welfare loss would be 1.95).\13\ Hausman also finds 
significant, albeit somewhat smaller, impacts of societal economic 
welfare. He finds that for every additional dollar raised in taxes on 
wireless services, the marginal efficiency cost to the economy is 
between $0.72 and $1.14.\14\ In other words, when a jurisdiction adds a 
tax on wireless service, for every dollar it receives, society loses 
between $0.72 and $1.14.
    The impact of taxes on wireless broadband is likely to be even 
higher, given the even-broader network and prosumer externalities. In 
fact, Goolsbee finds this to be the case, with the overall economic 
welfare loss from $1 of taxes on broadband (wireless or wired) being 
between $3.46 and $5.15.\15\ In other words, for every dollar raised in 
taxes, society as a whole loses at least $3.46.
                    the rationale for federal action
    Even with these significant negative impacts from discriminatory 
wireless taxation, some argue that jurisdictions should be free to 
impose these taxes. If these negative effects were confined to the 
jurisdiction imposing the taxes, the opponents of legislation would 
have a stronger, but in my view, still inadequate case. But the costs 
of discriminatory wireless taxation are not only borne by residents of 
the jurisdiction, but by all Americans. In particular, while sub-
national jurisdictions also benefit from higher levels of wireless 
adoption, there is an asymmetrical distribution between the costs and 
benefits of taxes on wireless services. When jurisdictions tax wireless 
services, they receive all of the financial benefit of the tax, but the 
net social cost of lower rates of wireless service access extends 
beyond the jurisdictions' borders to affect residents and businesses 
across the entire nation.
    Second, opponents of this legislation argue that it will hurt state 
and local fiscal health. But this legislation only prohibits new 
discriminatory taxes. Moreover, states and localities will benefit as 
higher levels of productivity generate lower prices for their citizens. 
In addition, the economic benefits of a healthy national economy will 
provide state tax administrators opportunities to increase their state 
tax revenue.
    Third, opponents will argue that this simply shifts taxes from one 
service or product to others. Of course it does. But that's not the 
point. The point is that the negative effects of taxes on wireless 
services are higher than on most other services or products. For 
example, Hausman finds that the effect on welfare of general taxation 
and income taxation is between 54 to 71 percent less costly to economic 
efficiency and net economic welfare than taxes on wireless.\16\ And 
taxes on items with negative externalities, such as products like 
petroleum which emit greenhouse gas emissions, would have positive 
effects on economic welfare. Opponents also argue that many types of 
industries are subject to their own special taxes. But again, the major 
reason why discriminatory wireless taxes are a bad idea is not because 
discriminatory taxes themselves are a bad idea. Taxes on tobacco 
products are rightly justified by the adverse health effects from 
smoking. Rather, it is discriminatory taxes on products or services 
with large positive externalities that are problematic.
                               conclusion
    Wireless innovation is likely to continue to bring new consumer 
functionalities, business and government benefits and overall economic 
growth. However, the evidence clearly shows that taxes on wireless 
services, particularly discriminatory taxes, have a clear negative 
effect on adoption of these services and because of that, negative 
effects on both U.S. economic growth and economic opportunity for all 
Americans, and lower income Americans especially.

Notes:

 1.  Robert D. Atkinson and Andrew S. McKay, ``Digital Prosperity: 
Understanding the Economic Benefits of the Information Technology 
Revolution,'' (Washington, DC: The Information Technology and 
Innovation Foundation, 2007) .

 2.  U.S. Bureau of Labor Statistics, ``Spending on Cell Phone Services 
Has Exceeded Spending on Residential Phone Services,'' 2007, 
.

 3.  Paul Rappoport, James Alleman, and Lester Taylor, ``Household 
Demand for Wireless Telephony: An Empirical Analysis,'' Presentation to 
the 31st Annual Telecommunications Policy Research Conference, Sept. 
19, 2003, George Mason University, Arlington, Va.

 4.  Allan T. Ingraham and J. Gregory Sidak, ``Do States Tax Wireless 
Services Inefficiently? Evidence on the Price Elasticity of Demand,'' 
Virginia Tax Review, Vol. 24: 249-261, 2004.

 5.  Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss 
of Taxing New Technology,'' Contributions to Economic Analysis & 
Policy: Vol. 5 : Iss. 1, Article 8. (2006) .

 6.  Ibid.

 7.  Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss 
of Taxing New Technology,'' NBER Working Paper 11994 (National Bureau 
of Economic Research, Feb. 2006): .

 8.  Ibid.

 9.  Pew Internet and American Life Project, Home Broadband Adoption 
2008.

10.  Ibid.

11.  Austan Goolsbee and Peter Klenow, ``Evidence on Learning and 
Network Externalities in the Diffusion of Home Computers,'' Journal of 
Law and Economics, October 2002, Vol XLV (2, part 1): 317-344.

12.  E. Kyriacou, et al., ``Multi-Purpose Healthcare Telemedicine 
Systems with Mobile Communication Link Support,'' BioMedical 
Engineering Online 2 (2003),  (accessed July 24, 2008).

13.  Ingraham and Sidak, op. cit.

14.  Jerry Hausman, ``Efficiency Effects on the U.S. Economy from 
Wireless Taxation,'' National Tax Journal, vol. LIII, No. 3., Part 2, 
733-742.

15.  Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss 
of Taxing New Technology,'' op. cit.

16.  Jerry Hausman, op. cit.
                               __________

    Mr. Cohen. Thank you, Dr. Atkinson.
    Our next witness is State Representative Mara Candelaria, 
from the State of Indiana. She has experience in Congress, 
having worked for U.S. Congressman Peter Visclosky and has 
worked with the Democratic Party. As a former NCSL executive 
committee member, I welcome you here and appreciate your work 
in the Indiana State House of Representatives.
    Would you begin your testimony?

  TESTIMONY OF THE HONORABLE MARA CANDELARIA REARDON, INDIANA 
                    HOUSE OF REPRESENTATIVES

    Ms. Candelaria Reardon. Thank you, Chairman Cohen and 
Ranking Member Franks, Members of the Subcommittee. My name is 
Mara Candelaria Reardon, and I have the honor of representing 
the 12th House District in Indiana. I serve on the 
Environmental Affairs, Government and Regulatory Reform and 
Ways and Means Committee in Indiana's House.
    Thank you for the opportunity to appear before you this 
morning to offer my support for H.R. 1521, the Cell Tax 
Fairness Act of 2009.
    The Cell Tax Fairness Act takes a thoughtful, pro-consumer, 
pro-broadband approach that will help to ensure affordable 
wireless services for my constituents and Indiana's nearly 4.7 
million wireless subscribers.
    Congresswoman Lofgren and Congressman Franks are to be 
commended for the broad bipartisan support they have garnered 
with this legislation. As a State legislator and particularly 
as a member of the Government and Regulatory Reform and Ways 
and Means Committee, any Federal legislation that places 
parameters on a State's ability to tax is something that I 
believe should be done sparingly, judiciously and, most 
importantly, does absolutely no harm.
    I believe that H.R. 1521 meets these criteria.
    Our system of Federalism grants State and local 
policymakers with the ability to determine how States should 
levy taxes on individuals and businesses that reside within 
their respective jurisdictions. As a member of Indiana's Ways 
and Means Committee, I am sensitive to preserving the State's 
taxing authority to fund government services. But as a 
legislator tasked with writing Indiana's tax laws, I also 
believe that another important precept of our Nation's tax 
structure is that taxes should be levied equitably on our 
citizens, particularly when multiple jursidictions have the 
ability to tax.
    In Indiana my constituents pay a 9.55 percent rate in State 
and local taxes and a relatively modest combined rate of 13.74 
percent in State, local, and Federal taxes, fees, and 
surcharges for their wireless services, as compared to the 
national average of 15.2 percent. Nevertheless, Indiana's 
wireless consumers are now effectively taxed twice. They not 
only pay the State sales tax like consumers of other goods, but 
also included is the utilities receipts tax. In several States, 
consumers pay taxes, fees, and surcharges in excess of 18 
percent on top of their monthly bills for their service. When 
tax rates reach those levels, as they do with alcohol and 
tobacco, the purpose is usually to inhibit use.
    Wireless services are no longer a luxury in our society. 
They have become a necessity. Preserving affordability should 
be an important public policy goal. H.R. 1521 provides a 
measured approach by only precluding new discriminatory taxes 
and fees from being added on an already excessive level of 
taxation imposed upon wireless consumers.
    Importantly, the legislation recognizes the revenue needs 
of States and localities and does not take away any existing 
revenue from State or local governments. In fact, H.R. 1521 
allows States and localities to raise wireless taxes if done in 
conjunction with an increase in taxes on other general goods 
and services.
    My focus here this morning will be to provide some 
historical context as to how we got here and where we are today 
and why I believe taking a time out from imposing new 
additional discriminatory taxes on wireless services is 
important to American consumers and consistent with principles 
espoused by the National Conference of State Legislators.
    The tax structure imposed on the communications industry 
today is a holdover from the days when the industry was 
operated by Ma Bell as a regulated utility. This tax structure 
was first instituted long before I entered public office and 
well before the first wireless call was ever made. As some may 
recall, as regulated utilities telecommunications providers 
were subject to taxes under statutes applicable to public 
utilities. The taxes imposed upon included gross receipts, 
franchise, and other industry-specific taxes that were passed 
on to consumers in the rates as part of the regulatory rate 
setting process. The phone company never had to worry about 
consumers looking for a cheaper alternative because there was 
no competition in the marketplace. State and local governments 
could tax telecommunications services at a much higher rate 
than other goods and services without worrying about 
constituent backlash because the natural reaction was, it is 
just the phone company raising my rates again.
    Fast forward to today, and the communications marketplace 
is drastically different than it was 20 years ago. Consumers 
have a myriad of options to choose from to be their 
communications provider as well as voice and data plans to meet 
their individual needs.
    However, the legacy tax structure remains in place. Our 
Federal and State income tax is structured such that if you 
earn more you pay more in taxes. That is not the case with 
respect to the payment of wireless taxes.
    As I mentioned previously, Indiana has approximately 4.7 
million subscribers. Of that 4.7, nearly 14 percent of 
Indiana's households have cut the cord and are wireless only. 
As of October, 2008, 4.5 percent of Indiana's wireless 
subscribers had income levels of less than $50,000 and 61.7 
percent had income levels of less than $75,000. Regardless of 
whether someone is making $25,000 annually or $125,000 
annually, they will pay the same tax rate on their purchases of 
wireless services. With the national average of 15.2 percent, 
consumers who are of lower or moderate incomes pay 
disproportionately more for the same services than those with 
higher incomes.
    Why is this important to bear in mind? Access to wireless 
services is no longer a luxury for a select few but rather a 
vital necessity, particularly for those facing economic 
challenges.
    In preparing for this hearing, I took the opportunity to 
read an April 27 Dear Colleague circulated by Congresswoman 
Lofgren and Congressman Franks. The Dear Colleague highlighted 
an March 23 Washington Post article chronicling how low-cost 
cell phones provide an essential lifeline to the homeless.
    When you consider how important wireless services have 
become to consumers today, taxing those services at an 
excessive level is counterproductive.
    As I mentioned earlier, I am sensitive to the importance of 
preserving State and local governments' ability to fund 
government services. Current tax revenues in Indiana are down 8 
percent from last year. But as policy makers it is important 
that we also finance public services not to target one good or 
service for disparate tax treatment.
    I can go on.
    Mr. Cohen. I know you can but you also can't.
    Ms. Candelaria Reardon. Thank you for the opportunity.
    [The prepared statement of Ms. Candelaria Reardon follows:]
      Prepared Statement of the Honorable Mara Candelaria Reardon
    Chairman Cohen, Ranking Member Franks and members of the 
Subcommittee, my name is Mara Candelaria Reardon, and I have the honor 
of representing House District 12 in Northwest Indiana. I serve on the 
Environmental Affairs, Government and Regulatory Reform and Ways and 
Means Committees in Indiana's House of Representatives.
    Thank you for the opportunity to appear before you this morning to 
offer my support for H.R. 1521, the ``Cell Tax Fairness Act of 2009.'' 
The Cell Tax Fairness Act takes a thoughtful, pro-consumer, pro-
broadband approach that will help to ensure affordable wireless 
services for my constituents and Indiana's nearly 4.7 million wireless 
subscribers.\1\ Congresswoman Lofgren and Congressman Franks are to be 
commended for the broad bi-partisan support they have garnered with 
this legislation.
---------------------------------------------------------------------------
    /1/ FCC's Local Competition Report, September 18, 2008
---------------------------------------------------------------------------
    As a state legislator and particularly as a member of the 
Government and Regulatory Reform and Ways and Means Committees, any 
federal legislation that places parameters on a state's ability to tax 
is something that I believe should be done sparingly, judiciously and 
most importantly, does no harm. I believe that H.R. 1521 meets these 
criteria. Our system of Federalism grants state and local policymakers 
with the ability to determine how states should levy taxes on 
individuals and businesses that reside within their respective 
jurisdictions. As a member of Indiana's Ways and Means Committee, I am 
sensitive to preserving a state's taxing authority to fund government 
services.
    But as a legislator tasked with writing Indiana's tax laws, I also 
believe that another important precept of our nation's tax structure is 
that taxes should be levied equitably on our citizens, particularly 
when multiple jurisdictions have the ability to tax. In Indiana, my 
constituents pay a 9.55% rate in state and local taxes, and a 
relatively modest combined rate of 13.74% in state, local and federal 
taxes, fees and surcharges for their wireless services as compared to 
the national average of 15.2%.
    Nevertheless, Indiana's wireless consumers are now effectively 
taxed twice. They not only pay the state sales tax like consumers of 
other goods, but also included is the Utility Receipts Tax.
    In several states, consumers pay taxes, fees and surcharges in 
excess of 18% on top of their monthly bills for their service. When tax 
rates reach those levels, as they do with alcohol and tobacco, the 
purpose is usually to inhibit use. Wireless services are no longer a 
luxury in our society; they have become a necessity. Preserving 
affordability should be an important public policy goal.
    H.R. 1521 provides a measured approach by only precluding new 
discriminatory taxes and fees from being added on an already excessive 
level of taxation imposed upon wireless consumers. Importantly, the 
legislation recognizes the revenue needs of states and localities and 
does not take away any existing revenue from state or local 
governments. In fact, H.R. 1521 allows states and localities to raise 
wireless taxes if done in conjunction with an increase of taxes on 
other general goods and services.
    My focus here this morning will be to provide some historical 
context as to how we got to where we are today and why I believe that 
taking a ``time-out'' from imposing new, additional discriminatory 
taxes on wireless services is important to American consumers and 
consistent with principles espoused by the National Conference of State 
Legislatures.
           historical context regarding communications taxes
    The tax structure imposed upon the communications industry today is 
a holdover from the days when the industry was operated by Ma Bell as a 
rate regulated utility. This tax structure was first instituted long 
before I entered public office and well before the first wireless call 
was ever made. As some may recall, as regulated utilities, 
telecommunication providers were subject to taxes under statutes 
applicable to ``public utilities.'' The taxes imposed included gross 
receipts, franchise and other industry-specific taxes that were passed 
on to consumers in the rates as part of the regulatory rate setting 
process. The phone company never had to worry about the consumer 
looking for a cheaper alternative because there was no competition in 
the marketplace. State and local governments could tax 
telecommunication services at much higher rates than other goods and 
services without worrying about constituent backlash because the 
natural reaction was, ``it's just the phone company raising my rates 
again.''
    Fast forward to today and the communications marketplace is 
drastically different than it was 20 years ago. Consumers have a myriad 
of options to choose from to be their communications provider, as well 
as voice and data plans to meet their individual needs. However, the 
legacy tax structure remains in place.
                  regressive nature of wireless taxes
    Our Federal and State income tax system is structured such that if 
you earn more, you pay more in taxes. That is not the case with respect 
to the payment of wireless taxes. As I mentioned previously, Indiana 
has approximately 4.7 million subscribers. Of that 4.7 million, nearly 
14 percent of Indiana's households have ``cut the cord'' and are 
wireless only.\2\ As of October of 2008, 45.7% of Indiana's wireless 
subscribers had income levels of less than $50,000 and 67.1% had income 
levels less than $75,000.\3\ Regardless of whether someone is making 
$25,000 annually or $125,000 annually, they will pay the same tax rate 
on their purchases of wireless services. With a national average 
wireless tax rate of 15.2%, consumers who are of lower or moderate 
income levels pay disproportionately more for the same service than 
those with higher incomes.
---------------------------------------------------------------------------
    \2\ Centers for Disease Control NCHS March 11, 2009
    \3\ ComScore October 2008
---------------------------------------------------------------------------
    Why is this important to bear in mind? Access to wireless services 
is no longer a luxury for a select few, but rather a vital necessity, 
particularly for those facing economic challenges. In preparing for 
this hearing, I took the opportunity to read an April 27th ``Dear 
Colleague'' circulated by Congresswoman Lofgren and Congressman Franks. 
The
    ``Dear Colleague'' highlighted a March 23rd Washington Post article 
chronicling how low-cost cell phones provide an essential lifeline to 
the homeless and those who are experiencing economic difficulty. The 
article clearly brings into focus what many of us take for granted, but 
for others provides some modicum of much needed normalcy.

        ``Having a phone isn't a privilege anymore--it's a necessity,'' 
        said Rommel McBride, who spent about six years on the streets 
        before recently being placed in a city housing program. . . . A 
        cell phone is the only way you can call to keep up your food 
        stamps, your housing application, your job. When you're living 
        in a shelter or on the streets, it's your last line of 
        communications with the world.''

    When you consider how important wireless services have become to 
consumers today, taxing these services at such an excessive level is 
counterproductive. Mr. McBride happens to live here in Washington, 
D.C., but there are thousands, if not millions of people throughout 
this country who rely on their cell phones to assist in finding a job; 
locating a place to live; keeping in touch with loved ones and friends; 
protecting their personal safety; accessing the Internet as well as a 
variety of other uses. For many, their wireless phone is their 
lifeline.
                         federalism perspective
    As I mentioned earlier in my testimony, as a state legislator, I am 
very sensitive to the importance of preserving state and local 
government's ability to tax in order to fund government services. 
Current tax revenues in Indiana are down 8% from last year. But as 
policymakers, it's also important, as we finance public services, not 
to target one particular good or service for disparate tax treatment as 
compared to others.
    For example, state and local wireless taxes and fees increased from 
10.2% to 11% between 2003 and 2007--this resulted in an increase in the 
rate of taxes on sales of wireless services that was four times the 
increase in the rate of taxes imposed on sales of other competitive 
goods and services.
    Opponents of H.R. 1521 claim that this legislation drastically 
departs from longstanding principles of federalism and that it provides 
favorable tax treatment to the wireless industry. Under our Federalist 
system, the federal government is authorized to exercise only those 
powers which are expressly provided by the Constitution, with all other 
powers reserved to the states as set forth under the 10th Amendment. 
Thus, the federal government's powers are limited. However, under the 
Commerce Clause, Congress is expressly granted the power to regulate 
commerce among the states. Due to the mobile nature of wireless 
services and the ability to use such services across the country, the 
provision of wireless services is clearly interstate commerce and well 
within the power of Congress to ``regulate commerce among the states.''
    Additionally, the 14th Amendment provides that ``. . . No State 
shall . . . deny to any person within its jurisdiction the equal 
protection of the laws'' and further specifies under Section 5 that 
Congress shall have the power to enforce, by appropriate legislation, 
the provisions of this article.
    In my opinion, H.R. 1521 does not dramatically depart from our 
federalist principles. In the mid 1970s, Congress passed the federal 4-
R Act which precluded states from discriminatorily taxing the railroad 
industry. And more recently in 2007, this Subcommittee played a leading 
role in the extension of the Internet Tax Freedom Act.
    It's my understanding that the primary beneficiary of this 
legislation is the American wireless consumer, not the wireless 
industry. In 2007, Indiana subscribers paid over $326 million in 
wireless taxes and fees. The carriers remit these taxes to the state, 
but it is the consumers that pay the overwhelming majority of these 
taxes, not industry. I appreciate the temptation to try and obfuscate 
the issue, but if this legislation results in a five to ten dollar 
savings each month for my constituents, while at the same time, the 
state of Indiana continues to collect $326 million or more annually in 
wireless tax revenues--I consider it a win-win.
    Last year, wireless consumers across the country paid nearly $21 
billion in state, local and federal taxes and fees imposed on their 
wireless services to fund government services. By anyone's measure, 
that is a lot of money for one subset of consumers to pay for an 
essential service. H.R. 1521 does nothing to jeopardize that revenue 
stream. In all likelihood, state and local revenues from wireless 
services will continue to grow if this legislation is enacted.
    H.R. 1521 provides a common sense solution to a growing problem. 
Clearly, it is a bill that that has broad, bipartisan appeal, as 
evidenced by over 100 cosponsors, which is why I strongly support the 
passage and enactment of H.R. 1521, the ``Cell Tax Fairness Act of 
2009.''
    Thank you again for this opportunity to offer my thoughts. I would 
be happy to answer any questions that you may have.
                               __________

    Mr. Cohen. Thank you, Representative Reardon. We do need to 
try to keep to the red light.
    Our third witness is Joanne Hovis. Ms. Hovis is President 
of Columbia Telecommunications Corporation, which is a 
communications engineering and consulting firm. She is an 
attorney. She has practiced both in Chicago and in Washington, 
is an authority on municipal and community broadband topics and 
on governments' role vis-a-vis. She has represented several 
impressive clients and knows when 5 minutes are 5 minutes. You 
are recognized.

    TESTIMONY OF JOANNE HOVIS, COLUMBIA TELECOMMUNICATIONS 
     CORPORATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
    TELECOMMUNICATIONS OFFICERS AND ADVISORS, THE NATIONAL 
   ASSOCIATION OF COUNTIES, THE GOVERNMENT FINANCE OFFICERS 
 ASSOCIATION, THE UNITED STATES CONFERENCE OF MAYORS, AND THE 
                   NATIIONAL LEAGUE OF CITIES

    Ms. Hovis. Thank you, Mr. Chairman. Chairman Cohen, 
distinguished Members, thank you for the opportunity to speak 
to you here today. I serve as a member of the Board of 
Directors of the National Association of Telecommunications 
Officers and Advisors, and I am very pleased to be here on 
behalf of NATOA as well as the U.S. Conference of Mayors, the 
National League of Cities, National Association of Counties, 
and the Government Finance Officers Association. I do focus on 
community broadband issues, working for State and local 
government and nonprofits across the country, and I am a long-
time advocate for the need for greater broadband, bigger 
broadband, more broadband, and more affordable broadband in the 
United States. And so I commend all of you and agree with much 
of what Ms. Lofgren said just a few minutes ago that the need 
for attention to this issue is enormous.
    What I would like to talk about here today, though, is 
whether this particular piece of legislation will really result 
in deployment of a lot more broadband or affordable broadband.
    The issue of tax policy, tax is not my area. That is for 
elected officials to address because they are answerable to 
their constituency. I would like to, rather, correct what I 
believe are some of the misunderstandings surrounding the 
economics of the wireless industry and the actual barriers to 
deployment of wireless broadband services to all areas of our 
country.
    First and foremost, the current tax treatment of wireless 
services by Federal, State, and local authorities has not 
hindered product innovation, service growth, or industry 
profitability. This industry, the wireless communications 
industry, is strong and successful. Growth has been explosive 
in high-density areas of the country where the carriers have 
chosen to invest and to deploy networks. In 1995, there were 
just under 34 million cell phone subscribers in the United 
States. By 2008, that number 270 million, 87 percent of the 
Nation's population. That is for wireless voice service. On the 
wireless broadband, or data side, we are seeing similar growth.
    Indeed, it is wireless that represents the greatest growth 
and opportunity for the communications industry in a variety of 
ways, and by its own account the wireless industry is very 
strong. Verizon, the country's largest mobile service provider, 
posted profits of $1.65 billion in the first quarter of 2009 on 
wireless revenue growth of almost 30 percent. Most of the major 
carriers, as Dr. Atkinson mentioned, are moving very fast to 
deploy in the areas where they see a return on investment.
    4G services, there is explosive movement toward and 
development toward deployment of next generation broadband 
wireless services. AT&T is upgrading existing networks like the 
other carriers and is expanding from 350 to 370 metropolitan 
areas in this next generation. Given the strength and 
profitability of this industry, one wonders why the industry is 
seeking preferential tax treatment, and I would like to address 
the issue of whether or not they actually are seeking it in 
order to deploy more wireless broadband networks.
    Given that the wireless voice and data industries are both 
profitable and growing at extraordinary rates in metropolitan 
areas of the United States, I think we should look at what is 
happening in the rural areas. Obviously we are not seeing that 
kind of growth in rural areas, and I should say that America's 
local governments are as concerned and troubled by this lack as 
is the Subcommittee. While I commend those who believe our 
Nation should find new models for expanding deployment in less 
densely populated areas, it is important to understand that it 
is the economics of wireless communications that is the reason 
for the slow or nonexistent deployment. Deployment of 
communications networks is extremely costly. Communications 
carriers are private for-profit companies, and they quite 
rationally allocate their investment resources to areas of the 
country where they are likely to achieve the highest return on 
investment, those areas that have relatively dense populations 
and higher, and thereby greater, potential penetration and 
higher revenues per mile of construction.
    The basic reality of these economics will not be changed by 
preemption of a particular tax or by removal of any single cost 
of doing business. Carriers will still invest their money where 
they are likely to get the greatest return on investment, and 
this is the central broadband issue that we face as a Nation in 
our rural areas, that that return on investment simply does not 
exist in the same way in rural areas. That is a national 
problem, but this is not the solution.
    Finally, let me very briefly point out that this 
legislation is not timely and should await the result of the 
proceeding currently underway at the Federal Communications 
Commission that Congresswoman Lofgren mentioned a littler bit 
earlier. As directed by the Recovery Act, the FCC is currently 
engaged in an extensive proceeding to develop a national 
broadband plan, and as part of that plan the FCC released a 
notice of inquiry that included questions abouta wide range of 
various things that could be hindering broadband deployment in 
the United States. And the Federal Communications Commission is 
undertaking a year of extensive analysis, and this Subcommittee 
should consider waiting to see the expert agency's conclusions 
before proceeding with this legislation, which is really a 
piecemeal attempt to deal with this issue.
    I know I am out of time. I want to thank you for your 
attention.
    [The prepared statement of Ms. Hovis follows:]
                   Prepared Statement of Joanne Hovis






                               __________
    Mr. Cohen. Thank you, Ms. Hovis.
    Our fourth witness is a State representative from the 
Sunshine State, Mr. Joseph Gibbons. He was elected in 2006. He 
has both parts of Broward and Miami Dade Counties. The football 
stadium may be in there, the baseball stadium. What do they 
call it now? Pro Player?
    Mr. Gibbons. Yes.
    Mr. Cohen. Prior to his election to the House he was on the 
Broward County Planning Council and has been a city 
commissioner from the City of Hallandale Beach.
    We appreciate your coming before the Committee, and please 
begin your testimony.

TESTIMONY OF THE HONORABLE JOSEPH A. GIBBONS, FLORIDA HOUSE OF 
                        REPRESENTATIVES

    Mr. Gibbons. Thank you, Chairman Cohen, Ranking Member 
Franks, and Members of the Subcommittee. My name is Joe 
Gibbons, and I am a member of the Florida House of 
Representatives representing the 105th District.
    One of the committees that I serve on is the Energy and 
Utilities Policy Committee. It is my commitment to my work on 
the issues of that committee that brings me here today.
    As wireless services continues to evolve and becomes more 
about services other than voice, it is critical to recognize 
that consumers in this emerging environment are not the same 
individuals that could afford the expensive Internet 
experience. We should not create the same digital divide on 
broadband as we initially created on access to the Internet.
    While Federal legislatures recognize the need to prevent 
excessive and discriminatory tactics on the Internet by passing 
the Internet Tax Freedom Act Amendments of 2007 and Federal and 
State policymakers embrace the desire to accelerate the 
deployment of broadband services, the fact remains that the 
current level of State and local taxation on telecommunications 
services is misguided and directly counter to economic 
prosperity.
    Unless the tax policies of the past are reformed to reflect 
the highly dynamic nature of the communications industry today, 
many of my constituents will be priced out of the ability to 
have affordable access to the most advanced wireless broadband 
services. The impact of the current level of taxation on 
wireless consumers is significant for the high level of 
seniors, African American, and Hispanic consumers, who as a 
group have shown a high adoption rate and significant use of 
both wireless and voice data services. My poorest constituents 
are more likely to have only a cell phone as opposed to having 
both a landline phone and a cell phone. Taxation should not 
punish disproportionately those who can least afford it. And in 
Florida that is the system in place today.
    I reach out to Congress today to help steer the course to 
telecommunications tax reform for all of my constituents, 
especially those that use their cell phone as a lifeline. In 
2000, to simplify the taxes and fees imposed upon 
communications services at the State level, legislation was 
passed that replaced 11 different impositions into one 
consolidated communications services tax. The base was expanded 
to specifically include wireless, even though several of the 
old impositions were for uses of the right-of-way or other 
public utility impositions. The current taxes imposed upon the 
entire communications industry, including wireless, appear to 
be excessive.
    One of the recent trends that the industry has highlighted 
has been to take the existing franchise and utility taxes that 
are already applicable to landline services and extend them to 
wireless. State and local officials are targeting wireless 
because the number of wireline customers are dwindling and they 
believe that wireless needs to fill that gap.
    It is incumbent upon legislators like myself to advance the 
needed reforms to the current tax structure at home so that 
this critical technology, a lifeline in the eyes of my 
constituents, is not taxed at rates in excess of 20 percent of 
their monthly bill.
    This bill does not preclude communication specific fees so 
long as the funds are solely used for that stated purpose such 
as funding for e-911 communications systems and universal 
service. This bill prevents taxes or fees from being imposed on 
wireless service that is not also imposed on general goods and 
services. I believe that those taxes should be as broadly and 
equitably applied as possible so that the cost of government is 
borne equitably by all constituents receiving the benefit of 
those services.
    As a former city commissioner and a part of the Broward 
League of Cities, I am intimately aware of the need for revenue 
to fund critical government programs. Like any State 
policymaker, I take any Federal intervention into State taxing 
authority very seriously. However, I believe that H.R. 1521 
carefully walks that fine line of when Federal intervention 
makes sense. This bill does not preclude my ability to tax 
wireless consumers or the industry in a rational way. It only 
precludes my State from targeting these consumers for 
additional excess taxes. I believe that precluding new 
discriminatory taxes from being enacted strikes the right 
balance between the different sovereign powers. These services 
clearly operate within interstate commerce and as such are 
within Congress' purview to address when they believe there is 
a social good to do so, and again I repeat, a social good to do 
so.
    Working with the States to address the existing tax burden 
on communication services has proven to be very challenging. 
This bill is seeking simply a time-out so that the situation 
doesn't get worse during the time that the industry is 
continuing to work with elected officials to fix the existing 
problem.
    The bill would not prevent States or localities from 
increasing sales taxes, property taxes, or other broad-based 
taxes that apply to wireless consumers and providers in 
addition to other taxable goods and services. This bill would 
benefit wireless consumers by preventing them from being 
singled out for new taxes.
    I think the Federal, State, and local governments all have 
a role in working together to ensure that we don't burden this 
technology with an onerous tax structure. This legislation 
seems to strike the right balance in our system of Federalism. 
It is not creating an unfunded mandate by ordering States to 
eliminate existing tax revenues imposed upon such services. It 
is simply identifying that State and local governments should 
not target wireless consumers unfairly to raise additional 
revenues or their existing tax structure might come up short. I 
believe precluding new discriminatory taxes from being enacted 
strikes the right balance between the different sovereign 
powers.
    Thank you again for this opportunity here today, and I 
would be happy to answer any questions that Members of the 
Committee might have.
    [The prepared statement of Mr. Gibbons follows:]
         Prepared Statement of the Honorable Joseph A. Gibbons
    Chairman Cohen, Ranking Member Franks and members of the 
Subcommittee, my name is Joe Gibbons and I am a member of the Florida 
House of Representatives representing the 105th District which 
incorporates parts of Broward County including all or parts of 
Hollywood, Hallandale Beach, Miramar, Pembroke Pines, Pembroke Park and 
Westpark. My current responsibilities in the state legislature include 
participation on the Transportation & Economic Development 
Appropriations Committee, the Energy & Utilities Policy Committee, the 
Full Appropriations Council on Education & Economic Development and the 
Joint Legislative Budget Committee. Thank you for the opportunity to 
testify today on H.R. 1521, the ``Cell Tax Fairness Act of 2009.''
    While federal legislators recognized the need to prevent excessive 
and discriminatory taxes on the Internet by passing the Internet Tax 
Freedom Act Amendments Act of 2007 and federal and state policymakers 
embrace the desire to accelerate the deployment of broadband services 
the fact remains that the current level of state and local taxation of 
telecommunications services is misguided and directly counter to 
economic prosperity and continued deployment of advanced mobile 
services across the country. Ultimately, unless the tax policies of the 
past are reformed to reflect the highly dynamic nature of the 
communications industry today, many of my constituents will be priced 
out of the ability to have affordable access to the most advanced 
wireless broadband services. HR. 1521 is a necessary first step to 
prevent further expansion of new discriminatory taxes on wireless 
services while simultaneously it is incumbent on legislators like 
myself to advance the needed reforms to the current tax structure at 
home so that this critical technology, a lifeline in the eyes of my 
constituents, is not taxed at rates in excess of 20% of their monthly 
bill.
               my constituents would benefit from reform
    My district is a diverse, multi-ethnic urban area which is one of 
the fastest growing areas in the state of Florida. The impact of the 
current level of taxation on wireless consumers is significant for the 
high level of seniors, African American and Hispanic consumers who, as 
a group, have shown a high adoption rate and significant use of both 
wireless voice and data services:

          For use of non-voice data applications on handhelds, 
        Hispanics and African Americans lead the way relative to 
        caucasian Americans. Half of African Americans and 56% of 
        English-speaking Latinos with cell phones, on a typical day, do 
        at least one of 10 non-voice data applications such as taking 
        pictures, accessing the internet for news, playing music, or 
        texting. By contrast, 38% of caucasians do these kinds of 
        activities on a wireless handheld device on the average day.\1\
---------------------------------------------------------------------------
    \1\ Pew Internet & American Life Project, Seeding the Cloud: What 
Mobile Access Means fir Usage and Online Content, March 2008,

          Mobile access builds on the cell phone, a device that 
        is easier to use and more affordable than a computer. Adoption 
        patterns have therefore been very different for the device, 
        which is a key platform for ``on the go'' information access. 
        Cell phone users are more likely to be found in groups that 
        have generally lagged in internet adoption, such as senior 
        citizens, blacks, and Latinos.\2\
---------------------------------------------------------------------------
    \2\ Pew Internet & American Life Project, Seeding the Cloud: What 
Mobile Access Means fir Usage and Online Content, March 2008

    All of the data points above are reflective of the broad 
demographics that make my district the center of diversity in the state 
and the impetus for the need of federal, state and local focus on the 
issue of taxation of wireless consumers. Florida undertook 
comprehensive measures in 2000, to ``simplify'' the taxes & fees 
imposed upon communication services. At the state level, legislation 
was passed that replaced 11 different impositions into one consolidated 
communications services tax. The base was expanded, to specifically 
include wireless, even though several of the old impositions were for 
uses of the Right of Way or other public utility impositions. Although 
simplification was accomplished, the excessive level of taxation 
remains. The state still has one of the highest rates on communication 
services in the country at over 20%. Recent efforts to reduce the rate 
imposed upon all communication services have failed but no time is 
better than the present to drive attention to this issue and create 
momentum for reform of the existing level of taxation of these 
services. What is clear though is that we shouldn't allow the situation 
to get worse at the same time we are trying to fix the current system 
and the situation in Florida provides a prime example of that 
rationale. Once the state and local jurisdictions become dependent upon 
receiving the revenues from these excess taxes it is very hard to work 
to take it away, even when policymakers might agree that it is the 
right policy to pursue. That is the genesis of what H.R. 1521 will help 
accomplish, stopping the current tax situation from getting worse for 
wireless consumers.
    Furthermore, as a small business owner, I am profoundly aware of 
the impact of mobile communications on the level of productivity, the 
increased speed at which to react to customers needs and the cost of 
tools that enhance and add to the bottom line. State and local tax 
policy that discourages use and adoption by small businesses also 
drives away investment in infrastructure. The most effective means to 
encourage investment in the state relative to investment is to 
eliminate the high level of discriminatory taxes that retard 
infrastructure investment and drive up prices. The current tax policy 
in Florida is counterproductive to the thousands of small entrepreneurs 
that make up my district, companies that add significantly to the local 
and state economy.
                 regressive nature of telecom taxation
    The high wireless tax burden on Floridians is a major concern but 
the burden on those Americans, regardless of ethnic identification, 
that can least afford telecommunications services is a primary concern. 
The following statistics from the Center for Disease Control's annual 
survey illustrates the concern of high taxes on wireless service:

          Adults living in poverty (21.6%) were more likely 
        than higher income adults to be living in households with only 
        wireless telephones.\3\
---------------------------------------------------------------------------
    \3\ CDC, Wireless Substitution: Early Release of Estimates from the 
National Health Interview Survey, January-June 2007

          The percentage without health insurance coverage at 
        the time of the interview among wireless-only adults (28.8%) 
        was twice as high as the percentage among adults living in 
        landline households (14.1%).\4\
---------------------------------------------------------------------------
    \4\ CDC, Wireless Substitution: Early Release of Estimates from the 
National Health Interview Survey, January-June 2007

    As a former City Commissioner and Vice-Chair of the Broward League 
of Cities Diversity Committee, I am intimately aware of the need for 
revenue to fund critical government programs but there needs to be a 
fine balance in how revenues are obtained so that one service is not so 
heavily burdened with taxes that it effectively discourages the use of 
such services, pricing them out of reach for a segment of the 
population that arguably relies upon them the most. Clearly that is the 
case with cell phone taxation and as a result those that can least 
afford the onerous burden are impacted the most. Ironically and to my 
point, relative to taxation of their cell phone bill my wealthiest 
constituents contribute at the same level as my poorest. And according 
to statistics, my poorest constituents are more likely to have only a 
cell phone as opposed to having both a land line phone and a cell 
phone. Taxation should not punish disproportionally those who can least 
afford it and in Florida that is the system in place today. I reach out 
to Congress today to help steer the course to telecommunications tax 
reform for all my constituents especially those that use their cell 
phone as a lifeline.
                    policy double-speak so to speak
    As wireless service continues to evolve and becomes more about 
services other than voice, it is critical to recognize that consumers 
in this emerging environment are not the same individuals that could 
afford the expensive Internet experience through the desktop computer. 
As pointed out by the Pew Internet & American Life Project ``groups 
that have in the past trailed in ``traditional'' internet access are in 
a better position to shape cyberspace as the internet becomes more 
accessible using wireless devices.'' For broadband to become available 
to the greatest number of American consumers, it's incumbent on 
policymakers to make wireless services affordable through reasonable 
tax policy, thus lowering a significant cost barrier.

          In 2005, the percentage of African Americans with 
        broadband service in the home was 14%; the percentage of all 
        African Americans was 30 percent. In 2007, the percentage of 
        African Americans increased to 40%, nearly tripling in number; 
        the percentage of all Americans was 47%.\5\
---------------------------------------------------------------------------
    \5\ Pew Internet & American Life Project, June 2007

    Broadband is critical to my community and communities across the 
State of Florida and the nation. The federal government has taken bold 
steps in recent months to stimulate the deployment of broadband 
services to all Americans. However on the flip side, policymakers are 
still seeking to tax wireless services to the point were the services 
are simply unaffordable. Taxation of products at rates close to the 20% 
level like those imposed upon alcohol and tobacco makes sense to most 
from a policy perspective because the intent is to discourage the use 
of such product(s) through the high level of taxes imposed. Conversely, 
taxation of wireless services, services that lawmakers want to ensure 
all constituents have affordable access to, at a 20% rate, makes 
absolutely no policy or economic sense. These high levels of taxation 
will stifle demand for such services, which in turn will also slow 
investment in critical broadband infrastructure so many policymakers 
continue to seek. We need to fix the existing problem as it is 
counterintuitive to many of our existing public policy goals of 
expanding the reach and affordability of broadband services.
                           state sovereignty
    Like any state policymaker, I take any federal intervention into 
state taxing authority very seriously. However, I believe that H.R. 
1521 carefully walks that fine line of when federal intervention makes 
sense. This bill does not preclude my ability to tax wireless consumers 
or the industry in a rational way. It only precludes my state from 
targeting these consumers for additional excess taxes. As we have 
already heard, Florida is already asking these consumers to bear more 
than their fair share of the state and local tax burden and we 
shouldn't allow that to get any worse. Certainly not for a service that 
is critical to the overall health and productivity of our Nation's 
economy.
    I strongly support H.R. 1521, the ``Cell Tax Fairness Act'' and its 
pro-consumer, pro-broadband intent. I welcome any questions you may 
have.
                               __________

    Mr. Cohen. Thank you, Representative Gibbons. I appreciate 
it.
    Our final witness is Don Stapley. Mr. Stapley is the Chair 
of the Maricopa County Arizona Board of Supervisors, which is 
Phoenix, which is where the University of Tennessee won the 
national championship a few years ago. He has risen through the 
ranks of NACo to become President, became President in Jackson 
County, Kansas City, Missouri. I am a former NACo member and 
attended a national conference of NACo in Jackson County myself 
many years ago.
    Welcome to the Committee, and we appreciate your testimony.

 TESTIMONY OF THE HONORABLE DON STAPLEY, MARICOPA COUNTY BOARD 
   OF SUPERVISORS, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
  COUNTIES, THE GOVERNMENT FINANCE OFFICERS ASSOCIATION, THE 
UNITED STATES CONFERENCE OF MAYORS, AND THE NATIONAL LEAGUE OF 
                             CITIES

    Mr. Stapley. Chairman Cohen, thank you, and distinguished 
Members of the House Subcommittee on Commercial and 
Administrative Law. I will skip my introduction to save time 
for the complete presentation, but I do appreciate the 
opportunity to appear before you today on behalf of NACo as 
well as the Government Finance Officers Committee--Association, 
I am sorry, the United States Conference of Mayors, and the 
National League of Cities. If there is one thing all of our 
organizations have in common, it is our longstanding opposition 
to efforts by Congress to preempt State and local taxing 
authority. This is especially true when it comes to 
telecommunications taxes. How to levy taxes fairly, how to 
ensure there is no discrimination among companies that provide 
different forms of the same service, and how to protect local 
government revenues are all appropriate debates, but these 
debates belong at the State and local level, and this is why 
our associations are united in our opposition to this bill.
    Local governments exercise their taxing authority to the 
extent provided by State law. As a result, local taxing 
authority and practices differs from State to State and 
oftentimes taxing policy differs from county to county and city 
to city within States. But this is good, because this means 
that every local government taxing authority tailors its tax 
policy by taking into account the sources of revenue available 
and the needs and wants of its residents.
    I was first elected to the Board of Supervisors in Maricopa 
County, Arizona in 1994. More than two-thirds of the population 
of Arizona lives in my county, which is also home to the State 
capital of Phoenix. Three weeks ago, the board adopted a 
tentative fiscal budget for years 2009 and 2010 of $2.1 
billion. This represents a 5.4 percent decrease from the 
current year's budget. The board adopted a strategic plan to 
exercise sound financial management and build the county's 
fiscal strength. To this end we cut jobs, programs, and some 
services and delayed capital projects which resulted in a 
savings of in excess of $122 million.
    Much of the county's revenue comes from property taxes, 
sales taxes, vehicle license taxes, and jail taxes. We choose 
to continue minimizing the property tax burden that we impose 
upon our citizens. Because of the rapid growth that has taken 
place within the county, the board has lowered or maintained 
the overall property tax rate for the past 15 years.
    In today's difficult economic times where State aid to 
local governments has decreased dramatically, local taxing 
autonomy is crucial in helping to ensure that the needs of 
local citizens, our mutual constituents, are met. The ability 
to make taxing and other fiscal policy decisions at the local 
level and without Federal intervention has enabled Maricopa 
County to provide the quality services that our constituents 
have come to expect.
    Some argue that the proposed 5-year ban set forth in this 
bill doesn't hurt State and local governments because they can 
still continue to collect the taxes they currently impose. But 
this misses the point.
    What this legislation does is preempt State and local 
taxing authority and represents a Federal intrusion into 
historically protected State and local tax classifications. 
Enactment of this bill would lead other industries to seek 
similar special Federal protection from State and local taxes.
    It is important to remember that State and local 
governments, unlike the Federal Government, must balance their 
budgets. In this tough financial climate, this isn't an easy 
task. Hard choices like those made in my county must be made. 
Essential services may be cut. Public employees may be laid 
off. Infrastructure repairs and construction may be put on 
hold. And yes, taxes may even have to be raised. But what is 
important to emphasize is that when balancing the budget, all 
options must be on the table. What this bill does is take away 
one of those important options, to tax the wireless industry at 
the expense of other taxpayers and businesses.
    This bill fails to recognize the plain fact that not all 
jurisdictions depend on identical revenue sources. Some have 
income tax. Others don't. Some tax food. Others don't. As a 
result some jurisdictions may necessarily have to tax wireless 
services at a higher level than others. Enactment of this bill 
would force those jurisdictions to rely even more heavily on 
other types of taxes, thereby shifting the tax burden to those 
in the community less able to tolerate it.
    However, whether a particular State or local government has 
imposed too high a tax burden on the wireless industry is an 
issue that should be addressed at the appropriate State or 
local government level. The Federal Government should not step 
in and impose a uniform, nationwide taxing scheme that provides 
preferential tax treatment to a single industry, the wireless 
industry in this case, while preempting State and local taxing 
authority.
    Those who support this legislation must ask themselves 
whether the preemption of State and local authority is 
warranted. I urge that in this case, where legislation seeks to 
protect an industry that continues to experience explosive 
growth and profits at the expense of other taxpayers, it is 
most definitely not. I urge you to speak out against this 
measure.
    Thank you for your time, Mr. Chairman, and the opportunity 
to be before you today, and I am happy to answer any questions.
    [The prepared statement of Mr. Stapley follows:]
            Prepared Statement of the Honorable Don Stapley




                               __________

    Mr. Cohen. Thank you, Mr. Chairman. Let me start with 
questions. I am going to recognize myself for 5 minutes.
    Representative Reardon, you mentioned in your remarks that 
the national average wireless tax rate is now 15.2 percent and 
that consumers who are at low and moderate income levels pay a 
disproportionately flat rate for the same services as those of 
higher incomes. I would like each of the representatives and 
the county commissioner to discuss the idea of regressive taxes 
such as this and its effect on people.
    Representative Reardon.
    Ms. Candelaria Reardon. Well, the regressive nature of the 
tax is based on the economic--if you look at the income of the 
average wireless customer by the Pew Hispanic study here, where 
84 percent of Hispanics now have wireless service that wouldn't 
potentially be able to afford the services that we were talking 
about, the access to the wireless that Dr. Atkinson mentioned, 
the services that they could get if they are paying 10 or $15 
in taxes. Those are services that they are unable to access for 
e-mail and other lifelines that they have to the community. And 
there was that article in--this is a lifeline for a lot of 
homeless people trying to access services for job opportunities 
and housing and food stamps.
    Mr. Cohen. Do you think wireless communications is kind of 
a necessity?
    Ms. Calendaria Reardon. I think it is becoming a necessity. 
These people that are living in homeless shelters, it is their 
only line of communication when checking on their housing 
situation and job opportunities. It is a way for them to stay 
connected to the world when they are living in a shelter, and 
they miss phone calls for job opportunities because they are 
using a pay phone or they don't get messages in a timely 
fashion. I think it is becoming more and more a necessity in 
today's society for everybody.
    Mr. Cohen. Representative Gibbons, do you have some 
thoughts to contribute on this subject?
    Mr. Gibbons. Yes, thank you, Mr. Chair.
    I think that it hinders access, actually. You know, it is 
not just about voice any longer. It is about all these other 
services that are part of what I consider economic development 
and cost cutting. You can access all kinds of medical records 
and all kinds of medical services online now. If you don't have 
access to that, then you cannot take advantage of the fact that 
there are savings involved in having that kind of access.
    What we are trying to say is, as we deploy it--see, when 
Internet services were first provided, there was a digital 
divide created. There were people who could afford desktop 
computers and people who couldn't afford desktop computers. 
Those who could afford desktop computers had instant access, 
and it opened up a whole new world to them.
    Well, the same thing is going to happen with broadband now. 
All I am saying is let's not leave anybody behind. Let's make 
sure that everyone has equal access to the opening up of this 
whole new world, because, again, we don't want two societies. 
And when we don't have the opportunity to be exposed to 
things--because, you know, an opportunity is not an opportunity 
unless you have had the exposure to see it as such. So if I 
block your exposure, I block your opportunities. And so, 
through the regressive nature of this, it blocks opportunities 
and it blocks exposure, and it keeps people living in certain 
conditions.
    Mr. Cohen. Thank you, sir.
    Mr. Commissioner Stapley?
    Mr. Stapley. Yes. You know, I think your question was, has 
this tax become regressive in some jurisdictions. And the 
answer to that is, if it has, I don't know; it certainly hasn't 
in my State and in my county. We don't tax cell phones in my 
county. We don't have the authority to. They may be taxed at 
the State level.
    But I can assure you, if it becomes a regressive tax, it is 
a lot easier to get rid of those politicians at the local 
level, by their local constituents, than it is to turn Congress 
over because they placed a ban on these taxes through a 
moratorium, a 5-year moratorium.
    So, in my opinion, it is a preemption question, not a 
question of regression.
    Mr. Cohen. Let me ask you this. So you believe that the 
Congress should not take a position and leave it up to all the 
locals and the States to have maybe different taxes levels, 
even though--this is, you know, different than fixed 
communications, the wireless folks can be moving from State to 
State, making calls from everywhere, and it is kind of a 
national form of communications.
    Do you not see a distinction of that in the old, 
traditional, Alexander Graham Bell----
    Mr. Stapley. No, I get your point, Mr. Chairman, and I 
understand it. But I do believe that government works best that 
is closest to the people. And, in my opinion, taxes on cell 
phones should be the same.
    You know, one of my colleagues next to me pulled out a new 
phone the other day, and he said, ``I threw away that extensive 
one, and I just got this one, and I am only paying $45 a month 
for unlimited service anywhere in the United States. It is a 
new program, it is great.'' It allows--I mean, it fosters 
competition.
    But when you take a whole industry and you treat it 
differently than other industries, I think you run the risk 
of----
    Mr. Cohen. But isn't it different when I can hold this 
phone, and it has a Memphis area code, and dial from Washington 
to Phoenix and talk on Phoenix ESPN Radio with, you know, 
whoever? And maybe it is different than if I was picking up a 
phone that was attached to the wall and, you know, kind of pull 
it around and put it to my ear and not get too far and call 
Phoenix from Memphis. Isn't that a little different?
    Mr. Stapley. It is different. But let me give you an 
example of why this preemption issue is the issue we are 
talking about and is more important than any of the other 
issues. And that would be the example of the Federal Government 
placing a tax on telephones, the kind that you are talking 
about--Alexander Graham Bell, fixed-on-the-wall line--to fund 
World War I, I believe, if I am not mistaken. That tax is still 
there. It has never been taken off.
    The express purpose of that tax, I think it was 11 percent, 
was to fund World War I. And Congress has never gone back and 
removed it.
    Mr. Cohen. Does that maybe speak to why we shouldn't have a 
moratorium, because it is difficult to repeal a tax once you 
have passed one, and you should do it right the first time 
rather than have just a hodgepodge?
    Mr. Stapley. I agree with you, except I think it is much 
more difficult at the Federal level than at the State and local 
level.
    Mr. Cohen. Thank you, sir. Thank you.
    I am up. Abiding by the 5-minute rule, I now recognize the 
new Ranking Member, the Ranking Member once-removed, Mr. Issa 
of California.
    Mr. Issa. Thank you, Mr. Chairman. And, by the way, you 
have a missed call on your phone, I noticed. That is the 
problem with being here on the dais.
    Boy, there is so much and, as you say, Chairman, so little 
time.
    Mr. Cohen. It was Speaker Pelosi. She was really calling 
for you.
    Mr. Issa. Oh, okay. As soon as I am done here, I promise.
    Well, you know, Mr. Stapley said we must ask, we who 
cosponsor this bill, and so I guess I will.
    Dr. Atkinson, just a couple of quick questions. First of 
all, don't we inherently use less of what we tax? And can you 
think of any reason we would want to limit communication, 
either digital or voice? Is there any public interest in 
limiting that? Is it a bad thing in some way other than, well, 
driving down the road not on your earpiece?
    Mr. Atkinson. Economists talk about elasticities of demand, 
so, in other words, what is the relationship of demand to the 
price. And there are different elasticities for different 
things. The elasticity, for example, of milk is quite low, or 
food. But the elasticity for cellular or wireless 
communications services is quite high.
    Mr. Issa. Okay, so, going through that logic, again, Mr. 
Stapley was kind of, you know, sort of saying, ``Stay out of 
our business. We need to do what we need to do.'' Well, let's 
go through this for a second.
    Wireline received access to public, State, city, county 
access to roads. They got right-of-ways. Were there any 
substantial right-of-ways granted by local municipalities? 
Isn't it true that wireless, they pay for every single booth 
and every single building that they put their cells on? They 
paid very dearly for their bandwidth when they went to auction.
    What is it that a city or a State gave to a wireline 
carrier? What asset did it give, loan, or provide?
    Mr. Atkinson. To a wireline?
    Mr. Issa. To a wireless, I am sorry, to a wireless, a 
wireless.
    Mr. Atkinson. Wireless. I am not aware of any on wireless.
    Mr. Issa. So, unlike wireline, they gave nothing. Unlike 
wireline, instead of being given, they had to pay. So where is 
the interest by a city or a county or a State in some harm or 
some offset for which they have a special right to tax greater 
than the ordinary tax?
    Which, if I understand my Constitution, we specifically 
have a prohibition on targeting taxes. You know, it is designed 
to keep from targeting one rich landowner out of business, but, 
in fact, you target an industry, it is somewhat the same.
    Is there anything that is so evil in wireless communication 
as to receive a special burden?
    Mr. Atkinson. No. It is to the exact opposite. I mean, it 
would be one thing if States or localities want to impose taxes 
that hurt their own economy or that hurt their own poor or low-
income citizens. The Federal Government doesn't have a job to 
protect them from bad decisions.
    The problem with this case, though, is that those decisions 
impact the rest of us. And they impact the rest of us by 
devaluing the value of the overall network. And that is what 
the----
    Mr. Issa. And going to that, isn't the commerce clause 
probably the most cited reason for the Federal Government 
feeling that, in fact, the common good of all the citizens of 
the various States and the District are required to be 
protected by we in Washington? And if, in fact, you were to 
have a local municipality that made it burdensome to do 
business there, that it could degrade the ability of the rest 
of the country to do business with, let's say, Arizona?
    Mr. Atkinson. Absolutely correct.
    Mr. Issa. So we do have a public interest. We do, in fact, 
understand that what we tax more we consume less of. We do 
understand there is nothing inherently wrong in that.
    Additionally, are there any offsets in the existing tax? 
For example, E911, although it is a wonderful service, and it 
is paid for out of the taxes on the system, in fact it is not a 
problem created by the system, but, in fact, an excess benefit 
created. I just want to make sure we understood that.
    I guess, Mr. Stapley, I have been referencing you because 
you were so vehemently opposed to our preemption. I will ask 
you one question and then let you answer sort of all of them.
    If, in fact, the good people of Arizona heard you today, or 
of Phoenix, and said, ``Okay, fine, if that is the way he feels 
about it, we will all simply go get phones in another area 
code, and we are simply not going to pay your tax if we feel 
that it is one penny higher than the lowest tax in the 
Nation,'' do you believe you would have any authority to do 
anything over your constituents choosing to pick a lower tax 
area under national law?
    And, if so, what we are proposing here, isn't it, in fact, 
for your own good that we want to essentially say, since they 
have the ability to go shop elsewhere, we are simply keeping 
you from taking advantage of your constituents simply because 
they want an area code that is convenient?
    Mr. Stapley. I think the best answer I can give you is that 
those debates should be not here in Washington, D.C. Those 
debates need to take place in the States and in the counties 
and in the cities.
    Mr. Issa. Well, I appreciate that, but I am a San Diegan, 
so I am sort of a suburb of Arizona all summer. And the 
``zoneys'' all appreciate that.
    Mr. Stapley. Yes, right, exactly.
    Mr. Issa. We take advantage of you in San Diego in a huge 
way. You can't vote. And what do we tax at a disproportionate 
rate? Hotel/motel, all the----
    Mr. Stapley. You are telling me.
    Mr. Issa. Exactly. We have huge taxes. And do you know why 
we do that in San Diego? Because there is no constituency 
against it.
    Mr. Stapley. Correct.
    Mr. Issa. Isn't, in a sense, when you say, ``Hold us 
accountable, we are the ones closest, we are going to have the 
election,'' isn't it true that basically there is nobody that 
has ever been voted out of office for putting a tax on 
something that is pretty invisible to the consumer, such as a 
hotel or, in this case, even local ups and adds to a telephone 
bill?
    And, by the way, you have my personal apology that we 
haven't yet paid for World War I and that we are still taxing 
it. Because I do think it is inherently wrong to be continuing 
to have these artificial taxes.
    Mr. Stapley. Well, I understand your point and do not 
disagree, but I do believe that the debates need to take place 
locally. And if there is a national problem, we can work 
together to solve that problem.
    But I don't think, by preempting State and local 
governments from assessing these taxes--because, again, for the 
very reason that I said in my testimony, every county, every 
city has different revenues, has different needs, and 
constituencies have different----
    Mr. Issa. Right. But just one question: Do you understand--
because you didn't seem to in your statement--that it is only 
discriminatory taxation that we are objecting to? If you want 
to tax, if you want to have a 17 percent sales tax on 
everything, this bill would not preempt you in any way, shape, 
or form from including wireless and wireline or anything else.
    Mr. Stapley. I do understand that, but I also understand 
that that is the basic premise upon which most politicians are 
unelected. So that is not the issue.
    Mr. Issa. So what you are saying is, if you had a 17 
percent sales tax, your people would be unelected, but if you 
have a tax on this particular subset, it may not show so much?
    Mr. Stapley. No. I think the point is, I don't think that 
the tax on this subset should be done at the Federal level or 
should be prohibited at the Federal level. It needs to be dealt 
with at the local level.
    Mr. Issa. But you know we prohibit you from having a poll 
tax. Do you think that is reasonable?
    Mr. Stapley. I do.
    Mr. Issa. Okay. So you do look at some arbitrary or some 
punitive or some discriminatory taxes that we prohibited as 
reasonable; you just don't like this particular preemption?
    Mr. Stapley. That is correct.
    Mr. Issa. Thank you.
    Thank, Mr. Chairman.
    Mr. Cohen. Thank you, sir.
    I am going to, in the policy of Chairman Conyers, going to 
recognize Mr. Watt next and then Mr. Delahunt and then Mr. 
Sherman.
    Mr. Watt, you are recognized, having been here for the 
longest period of time today.
    All right then, I would yield and recognize the Vice 
Chairman, Mr. Delahunt.
    Mr. Delahunt. Well, thank you, Mr. Chairman.
    And I am also the vice chair of the States' Rights Caucus. 
The gentleman to my right, Mr. Watt, has been chairing that 
particular caucus since I arrived here in Congress some 13 
years ago. He is, I am sure, well-known throughout the country 
for his advocacy for States' rights. And it is good to see that 
there is a Member in this branch that still believes in the 
viability of the 10th amendment.
    But I have been asked to submit for the record a statement 
of the Federation of Tax Administrators on cell phone taxation. 
And I would like to submit it for the record, Mr. Chairman.
    Mr. Cohen. Without objection, so done.
    [The information referred to follows:]
 Prepared Statement of the Federation of Tax Administrators, submitted 
by the Honorable William D. Delahunt, a Representative in Congress from 
                       the State of Massachusetts



                               __________
    Mr. Delahunt. You know, this is a debate that plays itself 
out in a variety of different ways, you know, preferential 
treatment, the interstate commerce clause. I have been very 
much involved in the issue of fairness as applied to the 
collection of the sales tax, you know, from out-of-State 
vendors.
    But let me just put a--if we continue here in Congress to 
limit the sources of revenue--and I am not even sure I am on 
this particular bill--but where are States and local 
governments and other subsets of States, where are you going to 
get your revenue?
    Mr. Stapley, do you have any ideas? Are you going to have 
a--are we are going to have to increase the property tax? Are 
we going to have to--which is clearly a regressive tax. It is a 
regressive tax. Or are we going to have to increase the sales 
tax rates and maybe increase it on such items as food?
    I mean, I think there are legitimate arguments on both 
sides of this issue.
    But let's presume that in Arizona, or in California, for 
that matter, local governments are doing a good job, they are 
making some real tough decisions, and that the budgets that 
they formulate we could all agree on. Where are they going to 
get their revenue?
    In Massachusetts, because of the difficulty in collecting 
State sales tax from out-of-State vendors, we have a shortfall 
of some $400 million to $500 million. That is a pretty good 
plug. In California, Mr. Issa, I understand it amounts to 
billions of dollars in terms of shortfall.
    Mr. Issa. $42 billion but rising.
    Mr. Delahunt. No, no, I am talking about just the shortfall 
because of the inability of the collection of sales tax.
    Mr. Issa. Oh, yes.
    Mr. Delahunt. You know, we can't continue to avoid 
discussion of this issue, which is: How do State and local 
governments, which deliver the real necessary services that 
people demand, how are we going to fund them? Any ideas? Be 
creative.
    Mr. Gibbons?
    Mr. Gibbons. Thank you.
    I can tell you what they are doing. They are increasing 
fees--water fees, fire fees, sewage fees. Because in Florida we 
limited the local government's ability to raise property taxes 
to a certain percentage of CPI. So what they did was, because 
we had falling property values, they started increasing fees.
    Mr. Delahunt. OK, we can increase fees.
    Mr. Gibbons. That is what is happening.
    Mr. Delahunt. Okay.
    Ms. Hovis?
    Ms. Hovis. Congressman, I am not a tax expert. I speak to 
the broadband issues. I don't know----
    Mr. Delahunt. Well, tell me, where would you get the money 
to fund teachers?
    Ms. Hovis. I would say only that the--I can't imagine how 
localities could exist if they don't have control over taxing 
decisions at the local level.
    And while I respect the tax issues here, I deeply respect 
those concerns, I think that if this piece of legislation is 
about impacting broadband investment, it will have only effects 
at the far margins. It will not solve the problem it purports 
to solve, even if it does have some kind of a basis in tax 
policy. There is not a broadband policy here.
    Mr. Delahunt. Thank you.
    Ms. Reardon, how do we fund the cops?
    Ms. Candelaria Reardon. Well, I think that this industry 
last year paid $21 billion in State, local, and Federal income 
taxes and fees. In Indiana alone, $326 million was paid by 
these taxes and fees.
    At some point we have to look at----
    Mr. Delahunt. Well, what new revenue sources at the local 
level would you suggest?
    Ms. Candelaria Reardon. Well, I think that, you know--first 
of all, I don't think that taxing the citizens any further, 
without looking at efficiencies in government----
    Mr. Delahunt. No, I am not giving you the hypothesis that 
we have done all the efficiency, that the local people are 
doing a good job, we are at a barebones budget, and we don't 
have enough money. How do you fund it?
    Ms. Candelaria Reardon. I can't speak to that----
    Mr. Delahunt. OK, thank you.
    Ms. Candelaria Reardon [continuing]. That land. I mean, we 
don't live there, in Indiana. We have lots of----
    Mr. Delahunt. I understand----
    Ms. Candelaria Reardon [continuing]. Reforms, and I think--
--
    Mr. Delahunt [continuing]. But I am using a national 
argument here.
    Ms. Candelaria Reardon. Well, then you look at fees, you 
look at property taxes. I think those are the things that----
    Mr. Delahunt. Property taxes, fees. Okay, thank you.
    Dr. Atkinson?
    Mr. Atkinson. I would not tax a critical engine of economic 
growth and innovation. For example, I wouldn't----
    Mr. Delahunt. Okay. Where would you tax?
    Mr. Atkinson. What I would----
    Mr. Delahunt. I am not asking where you wouldn't. Where 
would you tax?
    Mr. Atkinson. Right, I understand that, but I needed to say 
that first. What I would tax, I would tax things that basically 
have less distorted impact. And most of the studies show----
    Mr. Delahunt. You know, ``distorted'' is a great word. 
Where would you tax?
    Mr. Atkinson. I am going to say it in just about 1 second.
    Mr. Delahunt. He is going to rule me out in another second.
    Mr. Atkinson. As I said, I would therefore tax property, 
income, and sales. Income first, property----
    Mr. Delahunt. Thank you. Property, income, and sales.
    Mr. Stapley, you are my last shot.
    Mr. Stapley. Well, first of all, let me just say that, as 
representing the associations--the National Association of 
Counties, the League of Cities, the Conference of Mayors--we 
are not closed to telecom tax reform. We are interested in 
engaging and have engaged in that debate. We just are opposed 
to this what I consider to be a piecemeal approach.
    To answer your question specifically----
    Mr. Delahunt. Answer my question. Where would you tax? 
Let's say this bill goes and we will never be able to tax 
wireless ever again. What are you going to do?
    Mr. Stapley. We are going to continue to tax at the same 
three-legged stool that we have in the past, that we just 
talked about. And we are going to have to learn to live within 
our means. That is the answer to your question.
    Mr. Delahunt. I am even giving you the premise you are 
going to live in your means. You have the barebones budget out 
in Maricopa County. I mean, you know, you are paying teachers 
$7,000 a year, okay, and you are really crunching them down. 
How are you going to pay for it?
    I yield back. I thank the indulgence of the Chair.
    Mr. Cohen. Thank you.
    Mr. Watt, distinguished Member, head of the States' Rights 
Caucus, and Mr. Congeniality.
    Mr. Watt. Thank you, Mr. Chairman.
    Let me first applaud the testimony of Ms. Hovis, who didn't 
deal with the tax issue here but dealt with whether this is 
really going to have any impact on the provision of phone or 
broadband service. I definitely agree with you.
    And we need to figure out a way to extend broadband 
deployment into rural areas. Taxes is not driving that one way 
or another. In my urban community, I don't have any problem at 
all finding a network to do this. Whether they tax it or don't 
tax it is not driving that. But when I retreat on the weekends 
up the mountains of North Carolina, no service of any kind 
there. And whether this gets taxed or doesn't get taxed is not 
going to solve that problem one way or another.
    I am not an advocate of discriminatory taxes, even though I 
am cast as the States' rights advocate here. I have the same 
questions that Mr. Delahunt has asked about that. But I don't 
know that I think that is the issue either.
    My question is, how you define ``discriminatory'' here. And 
I just need a little more information, because I think the 
definition of ``discriminatory'' that is in this bill is way, 
way too broad.
    The taxation of mobile service property is one thing. I 
think we should not be discriminating between fixed people and 
mobile people. But the service, I am not sure how the taxation 
is being done. Maybe Ms. Candelaria Reardon and Mr. Stapley can 
help me with this.
    Is there a discrimination now between a fixed land line tax 
on service, phone service, broadband service, and mobile 
service? Because that is really the comparison that I think we 
ought to be trying to make here if we are trying to eliminate 
discriminatory taxation. It is not between all other people who 
are not in the business of providing telecommunications 
services.
    Is that going on now?
    Ms. Candelaria Reardon. I believe it varies from State to 
State. In Indiana, for example, we pay the local, State, and 
Federal taxes, fees, surcharges. However, on top of that, we 
also pay a utility receipts tax.
    Mr. Watt. On land lines and mobile lines?
    Ms. Candelaria Reardon. Yes.
    Mr. Watt. Or on just mobile lines?
    Ms. Candelaria Reardon. On both.
    Mr. Watt. Okay. So how is that discriminatory?
    Ms. Candelaria Reardon. Well, because there----
    Mr. Watt. Yet it would be under this bill. If it gets 
charged to land line carriers and it gets charged to mobile 
carriers, how is that discriminatory? That is what I am trying 
to figure out. Yet it would be under this bill.
    Ms. Candelaria Reardon. Right. And we touched on that, I 
think Congressman Issa touched on that earlier, about the 
right-of-way fees that are charged for cellular use as opposed 
to land lines.
    Mr. Watt. I am not looking at the source of what the State 
or the local community has provided historically. All of that 
stuff has kind of gone out. The land lines are owned by private 
industry now. They are not owned by the State anymore. They are 
not run by the State anymore.
    So if we are going to make a comparison, it seems to me we 
ought to be making a comparison between how we treat land-line 
phone and broadband service versus how we treat mobile phone 
and broadband service. And if those two things are being taxed 
the same way, that is how--I mean, that is my definition of 
``discriminatory.''
    I am perhaps asking the wrong person this. Maybe I should 
be asking Ms. Lofgren this when we get to a markup; it is her 
bill. But it seems to me that the definition of 
``discriminatory'' in this bill is way broader than I am 
comfortable with.
    Ms. Lofgren. Would the gentleman yield?
    Mr. Watt. Let me go to Mr. Stapley, and then maybe I can 
get Ms. Lofgren to explain this.
    Mr. Stapley. Yes, I would just offer a brief opinion. And 
that is, irrespective of the bill, it could be considered 
discriminatory either way, whether the bill is in place or not. 
I mean, there is a difference. A good example----
    Mr. Watt. My question is, are local communities taxing land 
telecommunication in a different way than they are taxing 
mobile telecommunication? And that seems to me to be the 
underlying question that I am asking.
    Ms. Lofgren. If I may?
    Mr. Watt. Yes, I will yield to the gentlewoman. My time has 
long expired.
    Ms. Lofgren. The answer to that is ``yes'' because the 
Congress has passed an Internet tax moratorium. And we did so 
because we want to nurture the development of the Internet.
    Mr. Watt. I wasn't all that happy about that either.
    Ms. Lofgren. But the answer to the question is, if you have 
a DSL line, you can engage in discriminatory taxes on the DSL 
land because that is broadband that we want to nurture. You can 
do so on your 3G line, which is another reason why the bill was 
introduced.
    I thank the gentleman for yielding.
    Mr. Watt. Okay. Well, maybe I just don't have enough 
education and understanding about how taxes are being imposed. 
But it seems to me that the definition of discriminatory in 
this bill goes well beyond differences in treatment of 
telecommunications companies and says you can't discriminate 
between mobile telecommunication companies and any company. And 
that I am troubled by.
    But I will get, when we get closer to the markup--maybe we 
should have a hearing about that rather than whether it is a 
good idea to discriminate. It is never a good idea to 
discriminate, but it is always difficult to define 
``discrimination'' and what is really discriminatory.
    So I am through, but Mr. Gibbons wants to respond to my 
question.
    Mr. Gibbons. Thank you for the question.
    To me, it is discriminatory when, in Florida, we tax all 
other goods and services at 6 percent but we tax these services 
at 20 percent.
    Mr. Watt. No, it is discriminatory if you tax land 
services, telecommunications services one way and mobile 
telecommunications services another way. It is discriminatory 
if you tax their property, the property of a non-
telecommunications company one way and the property of a mobile 
company another way. That is discriminatory.
    But if you, the service that is being provided here, the 
telecommunications service, if you are treating land providers 
and mobile providers the same way, that doesn't seem to me to 
be discriminatory.
    And that is what I am asking the question about. And I 
don't know the answer to that. Maybe----
    Mr. Atkinson. Could I respond to that quickly?
    Mr. Watt. If you know the answer to that question.
    Mr. Atkinson. I was going to answer that question.
    Mr. Watt. Okay. All right.
    Mr. Atkinson. I think there are two kinds of discrimination 
that we are talking about. There is inter-industry and intra-
industry.
    And what you are talking about is a discrimination within 
voice. And, clearly, the ideal would be no discrimination, but 
we do have difference rates right now. For example, as 
Congresswoman Lofgren alluded to, if I get on a user voice 
service, VOIP, voice-over Internet, on broadband, the broadband 
tax moratorium makes that a little bit--makes it less taxed 
than wireless. So that is discrimination.
    The point, I think, that is more important, though, is that 
it is not so much intra-industry, it is inter-industry, the 
fact that this overall set of services----
    Mr. Watt. See, I don't even want to go there. I mean, that 
is not the discrimination that I think we ought to be dealing 
with in this bill. That is just my own opinion. Maybe I am just 
out to lunch.
    I yield back, Mr. Chairman. I have taken much more time.
    Mr. Cohen. Thank you for yielding back the remainder of 
your time.
    Mr. Watt. I did not yield back any time. I just yielded 
back.
    Mr. Cohen. I will yield to the gentlelady of California, 
Mr. Sherman having joined the competition for congeniality.
    Ms. Lofgren. Thank you very much.
    And thank you, Mr. Sherman, for allowing me to ask my brief 
questions. At this time, I have to Chair a Committee hearing 
over in the Capitol in 7 minutes, so I will be brief.
    Dr. Atkinson, there has been some suggestion the taxation 
has no real impact, meaningful impact, on how this technology 
will be deployed. And I am wondering if you have a comment on 
that, number one.
    And, number two, you are a technology observer. And I am 
wondering if you have a view--you know, right now we have 3G. 
We are about to get a 4G rollout. In the next several years, 
unimpeded, what do you foresee will be developed in the 
wireless arena that is really at stake here, the related 
questions?
    Mr. Atkinson. Well, the first question is on impact. And I 
think it is important to understand that the impact here is 
what economists would call ``at the margin.'' So if you have a 
tax or don't have a tax, it is not going to affect wireless 
deployment in the middle of nowhere, doesn't matter what the 
tax is. And it won't affect wireless deployment in Silicon 
Valley.
    Where it will affect deployment, though, are places at the 
margin, where the costs are slightly higher than what you can 
make a return on. And that is clearly what Austin Goolsbee 
showed in his study. And the same thing happens on adoption.
    And I think it is important to recognize, on adoption, not 
everybody has a cell phone who uses wireless service as a 
traditional user. For example, we recently bought a cell phone 
for my father-in-law, who passed away recently, but before he 
passed away he had Alzheimer's. And he would walk around, and 
he didn't know where he was sometimes. And his wife, my mother-
in-law, did not know how to get hold of him. And we got him a 
cell phone from Verizon and we had, you know, with everybody's 
permission, a tracking thing you can put on it so that she 
could go on the Internet and find out exactly where he was. And 
this was very, very useful to us and it allowed him to sort of 
have mobility and be out in the community longer than would 
have otherwise.
    Well, that was a discretionary purchase. Now, we were fine 
with making it, but there are lots of other people where having 
an 18 percent tax on that might keep them from doing it. So I 
do think that there is clearly economic evidence that this is 
discretionary.
    In terms of where we are going, I think we are really only 
at, if you will, Internet, sort of, wireless 1.0. Wireless 2.0 
is going to be an amazing series of things where we will be 
able to do medical data transfer, we will have 4G wireless, be 
able to have broadband to the home, a fourth pipe, a third 
pipe. There will be a whole array of new innovative services 
that the iPhone is really just only touching on.
    So I think that is the context we have to think about that. 
Do we really want, as a Nation, to be taxing this whole array 
of new services? I would argue it makes sense to have a 5-year 
moratorium on doing that.
    Ms. Lofgren. Now, can you give us an international 
perspective on wireless development? Where is the United States 
relative to other countries? And where might we be relative to 
other countries in, say, 5 or 10 or 15 years from now?
    Mr. Atkinson. Well, in some areas we are ahead. We seem to 
be ahead, for example, on mobile services, wireless voice 
services. But in other areas we are behind.
    So, for example, the ability to use your cell phone--I was 
just reading today in the new iPhone announcement, you can use 
your cell phone to go get into your Zipcar. So if you get a 
Zipcar, you download the code, just wave your cell phone and it 
opens the door of the Zipcar--kind of a cool device. But we are 
so far behind on those.
    You take a country like Japan or Korea where you can use 
your cell phone to download movie tickets, walk into the movie 
theater, wave your cell phone, get into the theater. In Japan, 
the ability to have traffic information on your cell phone, you 
can look on your cell phone and know in real time what the road 
conditions are like.
    Those are the areas that we are farther behind on. And I 
think, unless we try to innovate more, we are going to continue 
to be behind there.
    Ms. Lofgren. I would just note, before I yield back--I 
won't take additional time. Thank you, again, Mr. Chairman, for 
this hearing.
    I do think, although not everyone agreed, that when we, the 
House and Senate, acted and the President signed the bill to do 
a moratorium on Internet access, it was really a mistake: This 
should have been included, and it was not.
    And I think, you know, that was a pretty broad consensus. 
Not every person agreed. But the country is now in a position 
where we are saying we are going to nurture Internet 
development. And, without including wireless, we are going to 
fall short.
    And, in fact, I think that wireless is going to leapfrog 
some of what we have already done, and that is just a personal 
opinion, not only in the United States but certainly in the 
developing world. If you take a look at parts of Africa, I 
mean, they are just going to leapfrog with the wireless 
technology that is being developed, provided that we take the 
right steps to nurture innovation both through our research 
efforts as well as our tax policy.
    So I thank you, all of the witnesses. And I apologize for 
running off to Chair my other Committee.
    Thank you very much, Mr. Chair.
    Mr. Cohen. You are welcome, and thank you.
    And now Mr. Sherman is recognized for 5 minutes.
    Mr. Sherman. Thank you, Mr. Chairman.
    I should explain my uncharacteristic politeness in letting 
Ms. Lofgren go first. It is actually a clever tactic so that 
she would be outside the room before she heard me in any way 
criticize her bill. I don't want anybody to think that 
congeniality is something they should expect from me except in 
extraordinary circumstances, no, not at all.
    Mr. Chairman, I would hope that we in the Federal 
Government would make sure that our Federal tax laws were 
entirely devoid of unfairnesses and unreasonable distinctions 
before we then go tell the States how to make sure that their 
laws are fair.
    In my State, we tax scotch more than we tax beer. I have 
always thought that was unfair. And I don't know why we aren't 
dealing with that issue or hundreds of other issues where we 
could say that we have some unfairness at the State level.
    The argument is that this is somehow preventing the 
deployment of a national network. Well, since 2000, 
subscribership in wireless has grown by 158 percent; revenue 
has grown 124 percent. And if I have to ask people in my State, 
``What are the big problems?'' insufficient access to wireless 
communication is not one of them. The fact that summer school 
has been cancelled in Los Angeles for insufficient revenue, 
that is likely to be on the list.
    Now, Mr. Atkinson urges that we tax property, income, or 
sales. But in my State we can't do that without a two-thirds 
vote, and we are not going to get one.
    Ms. Reardon, are you an advocate for taxing property, 
income, and sales to replace the missing revenue?
    Ms. Candelaria Reardon. Well, this bill does not actually 
impact revenue. The revenue that is already there will remain 
there. It is a moratorium on increasing sales taxes. It 
wouldn't inhibit the revenue already collected.
    Mr. Sherman. Well, my State has a $42 billion deficit. We 
are looking for new sources of revenue. Clearly, we are going 
to need some more revenue. Would you say we should get it from 
property, income, or sales taxes?
    Ms. Candelaria Reardon. Yes.
    Mr. Sherman. Okay. Have you advocated increases in any of 
those taxes in your own State?
    Ms. Candelaria Reardon. We have a surplus in our State, 
currently.
    Mr. Sherman. Congratulations. Could you share some of that? 
Yes, exactly, in the spirit of foreign aid. California is 
sometimes regarded as foreign.
    I would hope, Mr. Chairman, that since we are having 
hearings today that would undercut State revenue, that we would 
also have hearings on a bill, maybe Delahunt's bill, to reverse 
the Quill case and allow the proper collection of sales taxes 
that are already a matter of law. And, I mean, if we are able 
to pass such a bill, I think States could afford to see the 
passage of Ms. Lofgren's bill.
    I yield to the gentleman from Massachusetts.
    Mr. Delahunt. I thank the gentleman.
    And let me just say, because sales tax revenue, clearly, 
for most States is a significant part of their revenue source--
and I, in the past, have suggested that the stakeholders come 
together. I would advocate, to nurture various industries and 
moratoriums, et cetera, that potential support if, in fact, we 
can resolve exactly the problem as described by my colleague 
from California.
    But I can't support anything that will continue to erode 
the revenue base of State and local sources. I am finished 
doing that. Because until we address the major problem 
confronting States in terms of revenue sources, which is the 
sales tax, then everything else that comes in front of this 
Committee, I say, has to be deferred.
    And I thank the gentleman.
    Mr. Sherman. Just to explain the issue for those in the 
room that haven't followed it, a large number of States impose 
a sales tax. Every State that imposes a sales tax also imposes 
a use tax, so that if you are able to buy something through a 
catalog or a phone or Internet and escape the sales tax because 
it is shipped to you, then you are supposed to pay taxes on 
that as a use tax.
    The problem is that retailers outside your jurisdiction 
fail to collect the use tax or report the use tax liability. 
And so, as a practical matter, billions and billions of dollars 
of sales/use tax revenue is never collected.
    If we were able--and perhaps some of the people at this 
table could become advocates for a bill--to require retailers 
around the country to report when they ship something into 
Massachusetts or California or, better yet, to collect the 
sales and use tax and remit it to State tax authorities, if you 
want to put Zoe Lofgren's bill on that bill, I will vote for 
final passage, and you will have at least two votes that you 
might otherwise not get.
    With that, I yield back.
    Mr. Cohen. I thank the gentleman from California.
    And Mr. Jordan does not seek to ask any questions. And, 
with that, I believe we have concluded our questions.
    I want to thank each of the witnesses for their testimony 
and appearing before us.
    And I hope that if there are questions submitted to you, 
which there may be, by Members, that you will respond to them. 
You will have 5 legislative days to respond to those questions 
which might be submitted by Members of the Committee.
    Without objection, the record will remain open for those 5 
days for the submission of any additional materials from 
Members.
    And I thank everyone for their time and patience.
    This hearing of the Subcommittee on Commercial and 
Administrative Law is adjourned.
    [Whereupon, at 1:20 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

  Response to Post-Hearing Questions from Robert D. Atkinson, Ph.D., 
      President, Information Technology and Innovation Foundation





 Response to Post-Hearing Questions from the Honorable Mara Candelaria 
               Reardon, Indiana House of Representatives






    Response to Post-Hearing Questions from Joanne Hovis, Columbia 
 Telecommunications Corporation, on behalf of the National Association 
 of Telecommunications Officers and Advisors, the National Association 
 of Counties, the Government Finance Officers Association, the United 
    States Conference of Mayors, and the Natiional League of Cities




    Response to Post-Hearing Questions from the Honorable Joseph A. 
               Gibbons, Florida House of Representatives




  Response to Post-Hearing Questions from The Honorable Don Stapley, 
                  Maricopa County Board of Supervisors




                                 
