- The Washington Times - Friday, May 26, 2000

General Andrew Jackson fought and won the battle of New Orleans several days after the War of 1812 had been ended by treaty. In the 1950s stranded Japanese soldiers would periodically come out of the jungle to learn from Pacific villagers that World War II had not gone as planned. Yesterday, the House of Representatives voted 422-2 to abolish the 3 percent federal excise tax on phones that was imposed to fund the Spanish-American War more than 100 years ago.

The 100-year-old tax on telephone service deserved to die. It also teaches us a number of lessons about taxation in America.

This federal excise tax on telecommunications was sold to the American people as a luxury tax, as few Americans had telephones in 1898. Now the tax falls on more than 99 percent of Americans, driving up the cost of living and keeping some lower-income Americans off the Web.

Many taxes begin their lives as taxes on the rich. When Theodore Roosevelt campaigned to impose an income tax on America he played to class warfare, envy and hatred. He promised that only the rich would pay this tax. Over time tens of millions of Americans would pay this rich man's tax.

The telephone tax was supposed to be temporary. As Rep. Chris Cox pointed out in the debate over the phone tax, the original sponsor of the tax promised that "all of these additional taxes are war taxes which would be naturally repealed or modified when the necessitates of war and the payment of war expenses have ceased." It has been slated to expire in 1960, 1961, 1962, 1963, 1964, 1973, 1985, 1987 and 1990. Instead this tax has lived longer than some of our constitutional amendments. One lesson of the 100-year phone tax is that any new tax that politicians promise will be temporary to pay for some worthwhile project must be term-limited with a real "sunset" clause. Today, American phone users are paying the Gore Tax imposed by the Federal Communications Commission (and not by Congress as the Constitution requires) supposedly to pay for wiring American schools. Well, more than 70 percent of schools are already wired, and the phone companies have offered to wire the rest absent the tax. But the tax pulls in several billion dollars each year with no end in sight. Long after all schools have been connected to the Internet your great-grandchildren will be paying the Gore Tax unless Congress acts now to sunset this tax once the schools are wired. Congress should set a date certain for the tax to end and prohibit the FCC from ever doing this again. An audit of how the money has been spent to date would be a good idea.

The Advisory Commission on Electronic Commerce chaired by Virginia Gov. James Gilmore recommended that the federal excise tax on phones be abolished. Of the 19 members of the commission, all but four members supported abolishing the tax. The four defenders of the tax were the three representatives of the Clinton administration and a pro-tax lobbyist, Gene Lebrun, appointed by pro-tax Sen. Tom Daschle, Democrat of South Dakota. The vote this week to abolish the 3 percent phone tax is the third action by the House of Representatives in May to implement the recommendations of the Gilmore Commission. The House voted two weeks ago to extend by five years the moratorium on discriminatory taxes on the Internet and last week voted to ban the FCC from imposing more Gore Taxes in the future.

The Senate is expected to join the House in voting to end this 100-year tax.

The federal tax on phones is only the tip of the iceberg. State and local governments have been piling on taxes on phone use to the point where the average state and local tax on phone use is 14 percent almost triple the sales tax imposed on the rest of the economy. Only liquor and tobacco are taxed more highly than telecommunications. In the past state and local politicians found your phone bill to be a convenient place to hide their taxes and fees. When phones were a regulated monopoly the mayor or governor could stick taxes and fees on the phone bill, and the phone companies wouldn't complain too much as they could just pass on the cost and they lived under the regulatory sword of Damocles so complaining was discouraged by the regulators.

Today, we are moving (too slowly) to a fully competitive market in telecommunications, and the taxes piled onto the cartelized industry of old are no longer sustainable. AT&T; alone files more than 90,000 different tax forms for state and local governments. (Actually, you and I pay those 90,000 taxes and fees, but AT&T; must pay the deadweight costs of collecting them.) Present federal law prohibits state and local governments from imposing discriminatory taxes on railroads because a national rail system is part of interstate commerce. For the same reason, the telecommunications industry should be brought under the same protection against being looted by every town, county or city that a phone line or cable passes through.

The first casualty of war is not the truth. It is the taxpayer. One hundred years after the Spanish-American War it is time to end this tax.

Grover Norquist is president of Americans for Tax Reform and a former member of the Advisory Commission on Electronic Commerce.

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