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An Open Letter to the United States Congress: Stop Discriminatory Taxes on Cell Phones!

July 14, 2011

Dear Member of Congress:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to support the Wireless Tax Fairness Act of 2011. This bipartisan legislation, introduced as H.R. 1002 by Rep. Lofgren (D-CA) and S. 543 by Sen. Wyden (D-OR), would prevent any state or local jurisdiction from imposing a new discriminatory tax on mobile phone services for the five years following the bill’s enactment.

Recent evidence suggests that cell phone users have been unfairly targeted by states and localities scrambling to address their budget gaps or pay for projects with little connection to improving the communications network. Between 2003 and 2007, taxes on cell phone service increased four times faster than those imposed on other goods and services. A report from economist Scott Mackey, appearing in State Tax Notes earlier this year, indicated that after several years of relative stability this burden is growing heavier again. Wireless users now shoulder a combined federal, state and local tax and fee load of 16.3 percent, twice the rate of the average retail sales tax and the highest wireless rate in six years.

These taxes have become attractive to legislators in large part because they act as “hidden” levies that are not readily apparent to the people paying for them. Given that wireless technologies long ago made the transition from a luxury good to a nearly ubiquitous necessity that provides a life-line for consumers of all income levels, legislators should not stand for these predatory tax hikes. By implementing a five-year moratorium only on additional taxes targeted toward mobile phones this bill would not take away existing revenue for state or local governments, but would instead allow for a period of stabilization that is needed to protect consumers.

Furthermore, the Wireless Tax Fairness Act would help to drive innovation in the digital marketplace. Historically, governments were able to fleece the communications industry because they severely limited competition and left customers with few options. Now telecommunications is a key driver of the economy that offers a wide range of services, including mobile banking and email, with direct ties to increased productivity and convenience. Discriminatory tax rates have the potential to snuff out future growth and innovation. In fact, a study appearing in Virginia Tax Review, authored by J. Gregory Sidak and Allan T. Ingraham found that for every $1 reduction in wireless tax, national economic welfare would rise between $1.23 and $1.95. 

While NTU would support efforts to reduce existing cell phone taxes and remove certain mandatory fees, this bill is a reasonable, pro-consumer piece of legislation whose urgency becomes more apparent with each day. Roll call votes on the Wireless Tax Fairness Act will be significantly weighted in our annual Rating of Congress.

Brandon Greife
Federal Government Affairs Manager