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Wednesday, October 20, 2010

Cell Phone Pervasiveness and Tax Fairness - and Federalism Too

I think two actions of the past few weeks need to be linked in order to get a better sense of the tax policy issue and to determine whether there is even a problem to be solved.

The first item - H.R. 1521, the Cell Tax Fairness Act. This bill provides that"no State or local jurisdiction shall impose a new discriminatory tax on or with respect to mobile services, mobile service providers, or mobile service property, during the 5-year period beginning on the date of enactment of this Act." A House Judiciary Committee subcommittee held a hearing on the bill back in June 2009, but only voted on it (favorable) on September 15. 2010. The bill is sponsored by Congresswoman Lofgren (my representative) and has 197 co-sponsors.

Some of the reasons noted in the 2009 hearing as to why a moratorium is needed include:
  • State telecom taxes are outdated and overly burdensome to providers and users.

  • It would help low to middle-income taxpayers.

  • It might better encourage broadband usage.
The second item - a report released October 14, 2010 by Pew Internet - Americans and their gadgets, notes that 85% of adults own a cell phone. Younger Americans do even better in cell phone ownership. About 95% of Americans age 18 to 29 own some type of cell phone.

So, this begs the question - if the existing quagmire of state and local telecom taxes has not adversely affected use of cell phones, why might the possibility of new state and local taxes be a problem?

Additional policy considerations:
  1. Federalism and taking care of one's own fiscal problems: The federal and almost all state governments are having fiscal problems. How will Congress stepping in to tell state and local governments that there is a potential new revenue source they won't be able to consider in shaping (and perhaps reforming) their tax system help them? Also, wouldn't it be better for Congress to spend time figuring out how it will address the reality that the federal fiscal system is on an unsustainable path? Let state and local governments figure out their tax base and rates without shackles. Leaving them with more options lets them decide on the best structure.

  2. How likely is it that state and local governments will enact policies that will harm growth of broadband and mobile services? Many of these governments have been helping to increase broadband access.

  3. If the federal government wants to help grow broadband, they don't need to impose restrictions on state and local governments to do so. The feds have lots of other options that utilize their own funds. Congress could allocate grant monies to vendors or users, offer tax credits, or take other measures.

What do you think?

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