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McCain: No New Cell Phone Taxes

August 13, 2008 - by Donny Shaw

(This is part of a series on legislation being sponsored in the Senate by presidential candidates Barack Obama (D-IL) and John McCain (R-AZ). Subscribe to our rss feed to get the rest.)

John McCain (R-AZ) has been fighting in Congress to eliminate excessive taxes and fees on cell phone users. In the previous session of Congress, he managed to amend a communications bill during committee mark-up to include a temporary ban on new taxes, but the bill never made it to a vote by the full Senate or House. On January 4,2007, the first day of the current session of Congress, McCain teamed up with six Republicans and one Democrat to introduce his ban as a stand-alone bill – the Cell Phone Tax Moratorium Act of 2007.

“The average general sales tax in the U.S. today is around six percent, but the average State and local taxes and fees on cell phone service comes in at about 17 percent,” McCain said upon introducing his bill. “Consumers are left paying a hefty portion of their monthly cell phone bill to the government for what many believe is their most important communications device.”

In the technology’s infancy, cell phone services were generally tax-free. Then, in 2003, a turning point occurred when Pennsylvania Governor Ed Rendell created a 5 percent cell phone tax as part of a broade package of tax provisions that solved a major budget impasse for the stae. Since then, nearly every state has instituted a cell phone tax as part of their budget plan, some as high as 24 percent.

But the state cell phone tax isn’t just a trendy budgeting gimmick. It’s a way for states to regain revenue from traditional-phone taxes as fewer and fewer people use landlines. According to CTIA – The Wireless Association, an industry trade group, by December 2007, more than 15 percent of U.S. households had abandoned traditional phone lines altogether. That figure is nearly double what it was in 2005, and growth, although somewhat slower, is expected to continue in the cell phone industry. Because they are public utilites and make use of publicly owned telephone poles and wires, traditional phone services have generally been taxed by state and local governments. Cellphone companies, however, do not use a public infrastructure. “The wireless industry has never been a utility and shouldn’t be treated that way,” said CTIA spokesman Joseph Farren.

From the congressional record, here are some more arguments from John McCain for his cell phone tax moratorium:

>Excessive taxes dampen innovation, and are regressive, hitting the most vulnerable customers the hardest. Although more then 72 percent of all Americans own a cell phone, 26 percent said they could not live without it because it is their only communications source, according to a recent Pew Internet and Life Project report. Cell phone only owners are often those who find it difficult to afford a wired and a wireless phone. Additionally, according to the same report, 74 percent of the Americans say they have used their cell phone in an emergency and gained valuable assistance.

McCain’s bill would not eliminate any of the cell phone taxes that are currently in place. It only prohibits states from “imposing any new discriminatory tax on mobile services (cell phones), mobile services providers, or mobile services property for three years.” That means that state could still create new taxes on cell phones, as long as they applied to more than just the cell phone industry.

But it’s a tough time to be trying to take any revenue options, like cell phone taxes, off the table. The Center on Budget and Policy Priorities explains that because of nation-wide economic problems, 29 states are already facing big budget shortfalls in 2009:

>The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.

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