Thursday, May 26, 2005 - The Progress & Freedom Foundation Blog

The Ho-Hum on Communications Taxes

Somewhere buried in today's TR Daily [subscription required] and entirely absent from many other publications is the following conclusion from a recent study of communications taxation: State and local governments tax telecom services at a rate more than twice the rate of other industries.

That this finding merits so little prominence is itself unremarkable given the heavy emphasis on issues that should evolve significantly in the foreseeable future (e.g., mergers, digital TV, indecency, 911 requirements). More remarkable is the sad truth that heightened tax burdens on communications services are commonplace and unlikely to change significantly anytime soon.

As Judge Posner articulated in the context of implicit communications subsidies -- making some services artificially expensive to keep other services artificially cheap -- government long has viewed this industry as a medium for wealth redistribution. So a disparate state and local tax burden stands alongside universal service, rate averaging over regions and various build-out and "anti-redlining" requirements as methods by which government shifts economic benefits from some citizens to others. Taxing authorities like these schemes (both special telecom taxes and the subsidies Posner dubbed "taxation by regulation") primarily because the pervasiveness of communications services tends to make redstribution there less obvious to grumpy taxpayers than, say, raising income tax rates.

There is no doubt that much of the tax revenue collected from communications companies funds worthwhile programs. But given the government's interest in stimulating investment in innovative digital technologies and in reducing taxes generally, perhaps the wisdom of saddling the industry with a disproportionate tax burden is something policymakers should reconsider -- at least after they craft a regulatory framework that is at all suited to communications in the digital age.

posted by Kyle Dixon @ 3:31 PM | Capitol Hill , Communications , General , State Policy , Universal Service