[Congressional Record Volume 151, Number 88 (Tuesday, June 28, 2005)]
[Senate]
[Page S7526]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SANTORUM (for himself, Mr. Crapo, Mr. Smith, and Mr. 
        Hagel):
  S. 1321. A bill to amend the Internal Revenue Code of 1986 to repeal 
the excise tax on telephone and other communications; to the Committee 
on Finance.
  Mr. SANTORUM. Mr. President, I rise to introduce the Telephone Excise 
Tax Repeal Act of 2005, a bill that would abolish a tax that is 
severely outdated.
  The telephone excise tax originated on long distance service under 
the Spanish American War Act of 1898. At that time, only the wealthy 
had telephones, the U.S. had no income tax, and the country relied on 
excise taxes to fund the war. However, you would not know the intent of 
this tax by looking at your phone bill. The charge on your phone bill 
doesn't say ``luxury tax'' or ``war tax.'' So why does this tax still 
exist?
  Although created to cover war expenses in 1898, the revenue from the 
telephone excise tax goes into the general receipts of the U.S. 
Treasury and is not earmarked for any particular government function or 
service. From its inception, the federal telephone excise tax was 
repeatedly imposed on a temporary basis. However since 1932, the tax 
has continuously been imposed. This tax has been scheduled to expire--
partially or completely--at least 17 different times. In 1990, and just 
before the tax was set to expire, Congress made the tax permanent at 3 
percent of local and long distance services.
  The Joint Committee on Taxation stated in its January 2005 report 
``there is no compelling policy argument for imposing taxes on 
communications services.'' The Congressional Budget Office took this a 
step further by stating in February 2005 that the tax ``has harmful 
effects on economic policy.''
  Repeal of this tax provides consumers with two main benefits--removal 
of a regressive tax and elimination of an ``invisible tax.'' First, the 
tax is considered a regressive tax because lower-income individuals 
spend a higher percentage of their income on the taxed item than those 
with higher-incomes. A 1987 study by the CBO concluded that excise 
taxes on telephone service had a greater impact on low-income families 
than did excise taxes on alcoholic beverages and tobacco products. 
Studies have shown that individuals and families with income less than 
$10,000 spend almost 10 percent of their income on telephone bills. 
Individuals and families earning $50,000 spend two percent of their 
income for telephone service.
  Second, repeal eliminates this ``invisible'' tax that consumers pay 
through their telephone companies. Because phone companies collect the 
tax from their customers, the government is spared the expense. 
However, this convenience for the government makes the tax 
``invisible'' to consumers by tying it to the payment of their phone 
bills. Additionally, any administrative costs associated with the 
collection of this tax are most likely passed forward to the consumers, 
artificially raising the cost of telecommunications with no benefit 
from the additional taxes.
  Telephone service providers lose as well under the current tax, and 
its repeal would further reduce the cost of telecommunications for 
consumers. Providers carry the administrative costs of being the 
government's tax collector. Additionally, while providers do not bear 
this tax directly, the tax raises the cost of services for consumers 
and in turn reduces both the number of subscribers and the amount of 
services requested.
  Common sense dictates that repeal of the telephone excise tax is long 
overdue. Communication is not a luxury. Rather, communications have 
become part of the basic fabric of our social and economic life. The 
growth of the technologies on which communications rides and the 
widespread use of communications in general should be encouraged and 
not taxed. The telephone tax is a regressive, inequitable, inefficient 
and unnecessary tax that Congressional policy makers have found to 
serve no rational policy purpose. I strongly urge my Senate colleagues 
to join me in supporting the repeal of the telephone excise tax.
                                 ______