Excising the Excise Tax

by Robert J. Wagman

Elected representatives in Washington, D.C., are working to make Americans’ telephone bills a little bit cheaper. President George W. Bush has pledged to abolish the 3-percent federal excise tax (FET) on telephone and telecommunication bills, and Congress is following through to make that pledge a reality.

The FET was originally imposed in 1898 to help fund the Spanish-American War. At the time, it was considered a luxury tax, since only a handful of private citizens and businesses owned telephones. The tax has been raised as high as 25 percent during the Second World War, and reached a low of 1 percent in the early 1980s.

On February 1, Sen. Chuck Grassley, R-Iowa, and 19 other legislators introduced the FET repeal into the current session of Congress as the “Help Eliminate the Levy on Locution (HELLO) Act.” “The telephone tax is as old as Teddy Roosevelt’s Rough Riders and just as obsolete,” Sen. Grassley declared when introducing the bill. “The tax hits every telephone owner, but it doesn’t pay for any specific program. It pours $5 billion into the U.S. Treasury each year for no reason. It’s time to hang up the telephone tax.”

Repeal of the tax has generated widespread bi-partisan support. In Congress’ last session, 420 Representatives and 97 Senators voted for repeal. President Clinton vetoed the bill because he opposed other measures bundled with it, including a cost-of-living increase for members of Congress.

Even if the FET is repealed, businesses in a number of states might actually see their phone bills increase. A number of governors and state legislatures are looking to impose new state excise taxes on phone bills. Minnesota Gov. Jesse Ventura, I, for instance, is pushing for a new 5-percent state excise tax on all retail telephone, telecom, and cable services. The revenue would be used to support high-cost telephone service areas, deployment of advanced telecom services, and special phone services for the handicapped.

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