House Moves to Repeal 19th Century Phone Tax

Way back during the Spanish-American War, Congress helped finance the U.S. military effort by slapping a luxury tax on an item owned by fewer than 1,500 households: the telephone.

That war was won more than a century ago. Phones now seem to be almost a dime a dozen. And on Thursday, Congress moved to abolish a tax that critics say is an anachronism and an obstacle to increasing access to the Internet.

The House Thursday voted 420 to 2 to approve a repeal of the 3% excise tax paid by families and businesses on telephone service. The Senate is expected to follow suit soon.

The measure would trim about $5 billion a year from the nation’s phone bills, including an estimated $659 million in California.

With about 94% of all households now equipped with phones, the excise tax affects 99.1 million households. It is levied against most major forms of telephone service, including local and long distance service, directory assistance and cell phone service, as well as installation and repairs.

The bill would eliminate the phone tax gradually, ending it fully by Oct. 1, 2002.

“This is a great example of how, in Washington, once a tax is imposed . . . it is almost impossible to get rid of it,” said Rep. Rob Portman (R-Ohio). To underscore the tax’s 19th century origins, he and others backing the bill appeared at a news conference featuring people dressed up as Theodore Roosevelt and his Rough Riders, who gained fame during the Spanish-American War.

For all the hoopla over the bill, however, the tax cut is pocket change compared to the $792-billion, 10-year tax relief package Republicans were seeking last year. One lawmaker checked his phone bill and found that repealing the telephone tax would save him only 97 cents a month.

Still, on Capitol Hill the repeal is viewed as rich in political appeal in this election year.

The measure is backed by phone companies and high-technology interests that can be potent sources of campaign cash. And while the immediate per-household benefit may seem small, proponents say that ending the tax now will keep taxpayers from facing a much bigger future burden as the explosion of the Internet and other telecommunications services vastly increase the use of phone lines.

The Clinton administration backs the repeal concept, but says that the bill should be considered in a broader context of competing budget and tax-cut priorities. Despite that note of caution, the measure’s supporters say it is hard to imagine Clinton would veto the bill in the face of overwhelming bipartisan support in Congress.

Even Senate Minority Leader Tom Daschle (D-S.D.), who has been a crucial roadblock to other, more controversial tax cuts, said that he will make “whatever effort necessary” to repeal the phone tax. “I think it’s appropriate and I hope that it’s done soon,” Daschle said.

Many Democrats oppose the tax because, like all flat-rate taxes, it has a larger percentage impact on the poor than the rich.

Republicans want to repeal it as part of their strategy of pushing tax cuts in small, more digestible bites than the sweeping tax-cut package that Clinton vetoed last year. These targeted tax cuts include a $28-billion, five-year cut in inheritance taxes approved by the Ways and Means Committee Thursday, as well as reducing the so-called marriage penalty that causes many couples who file joint income tax returns to pay more than if they filed as individuals.

Phone-tax repeal also is part of the GOP’s “eContract2000”--a set of legislative initiatives designed to appeal to the high-tech industry. As part of this effort, the House earlier this month passed a five-year extension of the current moratorium on taxes targeted at the Internet.

During Thursday’s House debate, many argued that the phone tax hampers the burgeoning electronic economy by adding to the cost of access to the Internet.

“We’re going to reduce one burden that has stood in the way of enhancing digital opportunity,” said Rep. David Dreier (R-San Dimas).

Some skeptics scoffed at such comments, saying that the phone tax is too small to significantly affect computer access.

“Massive tax relief!” said a sarcastic Rep. Gerald D. Kleczka (D-Wis.). “Great day!”

Still, Kleczka was part of the overwhelming vote in favor of the repeal. The two lawmakers voting against the bill were Reps. Pete Stark (D-Hayward) and John P. Murtha (D-Pa.).

When the tax was first adopted in 1898, it was envisioned as temporary. It was repealed in 1902, then reinstated and repealed twice more.

It has remained in place since 1932, although it has been reduced, increased and scheduled for repeal multiple times since then. But every time the tax was supposed to disappear, its expiration was delayed.

Finally, in 1990, Congress voted to make the excise tax permanent as part of a major deficit-reduction initiative.

“This is a perfect example of how taxes live forever,” said Rep. Gary G. Miller (R-Diamond Bar). “This tax refuses to die.”