A congressional committee is considering extending a tax that was created to pay for the Spanish-American War to all Internet and data connections. Passing the extension may still be an uphill battle. But as Teddy Roosevelt’s ride up San Juan Hill proves, uphill battles can be won.
Last month the Joint Committee on Taxation proposed that the 3 percent federal telecommunications tax — first introduced in 1898, then reintroduced to help finance World War I, and re-enacted yet again in 1932 — could be rigged to cover “all data communications services to end users.” As of now, the tax applies to traditional telephone service only.
But if the proposal becomes law, not only will it cover local and long distance voice services, it will also be levied on Voice over Internet Protocol (telephone calls made over the Web, referred to as VoIP), analog and digital cellular and satellite telephone services, cable and satellite television, broadband and dial-up Internet access services, paging services, and other data communications services.
Congress should be looking for ways to cut taxes, not increase them, especially on industries, such as telecommunications, that are so vital to economic growth. As the committee itself admits in the report: “Any excise tax distorts consumer decisions, and taxing new services and new technologies makes them more expensive, and, therefore, may slow their development.”
But because “the excise tax on communications services raises a significant amount of revenue,” inside-the-Beltway tax writers aren’t likely to let go of the idea without a battle.
Ironically, the Treasury Department recommended in 1987 letting the tax expire, but Congress never acted on the recommendation. It’s time for that to change. We won the Spanish-American War; now it’s time to lose the tax.