[Congressional Record Volume 146, Number 38 (Thursday, March 30, 2000)]
[Senate]
[Pages S1988-S1989]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROTH (for himself, Mr. Murkowski, Mr. Robb, Mr. Nickles, 
        and Mr. Mack):
  S. 2330. A bill to amend the Internal Revenue Code of 1986 to repeal 
the excise tax on telephone and other communication service; to the 
Committee on Finance.


             legislation to repeal the telephone excise tax

 Mr. ROTH. Mr. President, I rise today--along with Senator 
Breaux and others--to introduce a bill to repeal the telephone excise 
tax. It is a tax that is outdated, unfair, and complex for both 
consumers to understand and for the collectors to administer. It cannot 
be justified on any tax policy grounds.
  The federal government has had the American consumer on ``hold'' for 
too long when it comes to this tax. The telephone excise tax has been 
around for over 102 years. In fact, it was first imposed in 1898--just 
22 years after the telephone itself was invented. So quickly was it 
imposed that it almost seems that Uncle Sam was there to collect it 
before Alexander Graham Bell could put down the receiver from the first 
call. In fact, the tax is so old that Bell himself would have paid it!
  This tax on talking--as it is known--currently stands at 3%. Today, 
about 94% of all American families have telephone service. That means 
that virtually every family in the United States must tack an 
additional 3% on to their monthly phone bill. The federal tax applies 
to local phone service; it applies to long distance service; and it 
even applies in some cases to the extra amounts paid for state and 
local taxes. It is estimated that this tax costs the American public 
more than $5 billion per year.
  The telephone excise tax is a classic story of a tax that has been 
severed from its original justifications, but lives on solely to 
collect money.
  In truth, the federal phone tax has had more legislative lives than a 
cat. When the tax was originally imposed, Teddy Roosevelt was leading 
the Rough Riders up San Juan Hill. At that time, it was billed as a 
luxury tax, as only a small portion of the American public even had 
telephones. The tax was repealed in the early 20th century but then was 
reinstated at the beginning of World War I. It was repealed and 
reinstated a few more times until 1941, when it was made permanent to 
raise money for World War II. In the mid-60s, Congress scheduled the 
elimination of the phone tax, which had reached levels of 10 and 25 
percent. But once again, the demands of war intervened, as the 
elimination of the tax was delayed to help pay for Vietnam. In 1973, 
the phone tax began to phase-out, but one year before it was about to 
be eliminated, it rose up yet again--this time justified by the 
rationale of deficit reduction--and has remained with us ever since.
  This tax is a pure money grab by the federal government--it does not 
pass any of the traditional criteria used for evaluating tax policy. 
First, this phone tax is outmoded. Once upon a time, it could have been 
argued that telephone service was a luxury item and that only the rich 
would be affected. As we all know, there is nothing further from the 
truth today.
  Second, the federal phone tax is unfair. Because this tax is a flat 
3%, it applies disproportionately to low and middle income people. For 
example, studies show that an American family making less than $50,000 
per year spends at least 2% of its income on telephone service. A 
family earning less than $10,000 per year spends over 9% of its income 
on telephone service. Imposing a tax on those families for a

[[Page S1989]]

service that is a necessity in a modern society is simply not fair.

  Third, the federal phone tax is complex. Once upon a time, phone 
service was simple--there was one company who provided it. It was an 
easy tax to administer. Now, however, phone service is intertwined with 
data services and Internet access, and it brings about a whole new set 
of complexities. For instance, a common way to provide high speed 
Internet access is through a digital subscriber line. This DSL line 
allows a user to have simultaneous access to the Internet and to 
telephone communications. How should it be taxed? Should the tax be 
apportioned? Should the whole line be tax free? And what will we do 
when cable, wireless, and satellite companies provide voice and data 
communications over the same system? The burdensome complexity of today 
will only become more difficult tomorrow.
  As these questions are answered, we run the risk of distorting the 
market by favoring certain technologies. There are already numerous 
exceptions and carve-outs to the phone tax. For instance, private 
communications services are exempt from the tax. That allows large, 
sophisticated companies to establish communications networks and avoid 
paying any federal phone tax. It goes without saying that American 
families do not have that same option.
  With new technology, we also may exacerbate the inequities of the tax 
and contribute to the digital divide. For example, consider two 
families that decide it's time to connect their homes to the Internet. 
The first family installs another phone line for regular Internet 
access. The second family decides to buy a more expensive, dedicated 
high speed line for Internet access. The first family definitely gets 
hit with the phone tax, while the second family may end up paying no 
tax at all on their connection. I can't see any policy rationale for 
that result.
  Speaking of complexity, let me ask if anyone has taken a look at 
their most recent phone bill. It is a labyrinth of taxes and fees piled 
one on top of another. We may not be able to figure out what all the 
fees are for; but we do know that they add a big chunk to our phone 
bill. According to a recent study, the mean tax rate across the country 
on telecommunications is slightly over 18%. That is about a 6% rise in 
the last 10 years. In my little state of Delaware, the average tax rate 
on telecommunications now stands at 12%. I can't control the state and 
local taxes that have been imposed, but I can do my part with respect 
to the federal taxes. I seek to remove this burden from the citizens of 
my state--and all Americans across the country.
  The technological changes in America have increased productivity and 
revolutionized our economy. As members of Congress, we need to make 
sure that our tax policies do not stifle that economic expansion. We 
should not adhere to policies that are a relic from a different time. 
In 1987, even before the deregulation of the telecommunications market, 
the Treasury Department concluded that there were ``no strong arguments 
in favor of the communications excise tax.''
  In today's economy, the arguments for repeal are even stronger. 
Earlier this year, the National Governors Association issued a report 
concluding that ``policymakers need to create a telecommunications tax 
structure that more accurately reflects the new economic realities of 
the market and to ensure that current state tax policy does not inhibit 
growth in the telecommunications industry.'' Moreover, the Advisory 
Commission on Electronic Commerce, which Congress established to study 
the issue of Internet taxation, appears to have reached near unanimous 
agreement that the phone excise tax should be repealed.
  Mr. President, it is time to end the federal phone tax. For too long 
while America has been listening to a dial tone, Washington has been 
hearing a dollar tone. This tax is outmoded. It has been here since 
Alexander Graham Bell himself was alive. It is unfair. We are today 
taxing a poor family with a tax that was originally meant for luxury 
items. And it is complex. Only a communications engineer can today 
understand the myriad of taxes levied on a common phone bill and only 
the federal government has the wherewithal to keep track of who and 
what will be taxed. Mr. President, it is time we hung up the phone tax 
once and for all. I urge my colleagues to join me in supporting its 
repeal.
 Mr. ROBB. Mr. President, I rise today to introduce legislation 
with several of my colleagues on the Finance Committee to repeal the 
telephone excise tax that originated during the Spanish American War. 
Fiscal discipline in the past seven years has put us in a position that 
we could not have imagined even a few short years ago. We now have 
opportunities to strengthen Social Security and Medicare, pay down our 
burgeoning national debt and make investments that keep our economy 
rolling. Along the way, we will have opportunities to correct 
inequities in the Tax Code. Currently, all users of telephone services 
pay a 3% excise tax on their use. Repealing this tax will make phone 
service and internet access more affordable for hardworking families. 
In order to decrease the expanding digital divide, we must eliminate 
policies that discourage families from connecting to the internet. 
While I continue to believe that the best use of our growing surplus is 
to pay down the debt and strengthen Social Security and Medicare, I am 
pleased that we are entering a period where we can consider legislation 
that will sustain our high technology growth at the same time that we 
are shrinking the digital divide.
 Mr. BREAUX. Mr. President, I am pleased to cosponsor with my 
distinguished colleague, Senator Roth, a bill that will repeal the 
federal excise on telephone service. This tax is outdated, highly 
regressive and has lasted entirely too long.
  The ``tax on talking'' was originally levied as a luxury tax to fund 
the Spanish-American War. At the time, only a small number of wealthy 
individuals had access to telephone service. Telephones are no longer 
luxuries that only the very wealthy can afford. They are basic fixtures 
in every American household. And with the creation of the Internet, 
telephone service has become the lifeline of the new economy. This 
expansion of telephone service and its many uses has revealed the 
regressive nature of the ``tax on talking.'' Today, it is low-income 
families who are hit the hardest by this excise tax, since they pay a 
higher percentage of their income on telephone service than higher 
income families.
  Mr. President, with the almost universal subscription to telephone 
service, the repeal of this telephone tax would provide tax relief to 
virtually every family in the United States. I urge my colleagues to 
cosponsor this important piece of legislation. It is time we ended over 
100 years of Americans paying this regressive and unnecessary tax on 
telephone service.
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