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Secret Tax on Your Telephone

Opinion Editorial
May 2, 2000

By Mike Krause

If you are a Colorado telephone customer, you should know that a portion of your U.S. West and long distance telephone bill is being used to subsidize someone elses telecommunications usage.

The 1996 Telecommunications act greatly expanded the existing universal services fund, which subsidizes telephone service in high cost (rural) and low income areas. Under this program, people in rural areas (e.g., around Aspen) get subsidized phone service, no matter how rich they are.

The Snowe-Rockefeller Amendment added two new programs: the e-rate, a 2.25 billion dollar a year subsidy to schools and libraries, and a smaller rural health care provider subsidy, all administered by the Federal Communications Commission.

Section 254 (d) of the act mandates contributions from “every telecommunications carrier that provides interstate telecommunications service.”  While a mandated contribution may seem oxymoronic, this is the Clinton era, where government giveaways are investments and tax hikes are deficit reductions.

But even if you are willing to pay a bit more to provide subsidies to such nice things as schools and libraries, shouldnt it require an up front and honest accounting by the FCC and the congress?

You wont see a federal e-rate tax on your phone bill because the Federal Communications Commission wont allow it. The FCCs truth in billing docket states our view is consistent with the decision of the federal-state joint board on Universal Service which recommended that the commission prohibit carriers from depicting charges as mandated by the commission or government by terms of placement on bills.

In other words, fund this program, but dont tell your customers about it.

The only mention of the Universal Service fund on my April U.S. West bill was a note from my long distance carrier informing me that my “contribution” would now be made in the form of an 8.6% charge on my long distance as opposed to the flat Universal Connectivity charge.  (The bigger the long distance bills, the bigger the “contribution”).

On the local service side, no where on the bill do the words e-rate tax, federal mandate or subsidy appear in connection to the fund.

The appeal of this type of back door funding was made clear by then FCC Commissioner Reed Hundt: itll be passed on to everyone in America in insignificant ways to, you know pennies per day.  It will be a collective action by all AmericaProbably the most equitable way you could raise money for a national purpose would be through contributions by communications companies, because they cover the whole country.

This is breathtaking political sleight of hand, with bi-partisan support.  A government giveaway program funded off budget, letting politicians take credit with the constituents, without tapping the general fund, with the dirty work being done by the telephone companies.  And paid for, in the end, by the telephone user.  Who says there is no creativity in Washington D.C.?  Worst of all, it may be wholly unnecessary.

Should urban Coloradoans really have to subsidize the telecommunication needs of rural and low income residents?  We dont ask rural Coloradoan’s to subsidize the rents of Denverites, even though rent in Denver is higher than much of the state.  And Cato Institute fellow Lawrence Gasman has shown that telephone service for even the poorest of families is only 1 to 2 percent of their monthly budget. (http://www.cato.org/pubs/pas/pa-310.html)

As with televisions, automobiles and washing machines–all prohibitively expensive when first introduced, and now all standard for nearly all–innovation and fierce competition have steadily been driving down the cost of high tech telecommunications.  Wireless technology and competition are eradicating the high cost of telecommunications for rural areas better than any government program.

The fund also calls for a 20 to 90 percent discount for telecom services such as Internet access to schools in poor districts and high cost areas.  While Internet access may have a place as an educational tool, it is no more valuable than textbooks, yet there is no mechanism in place to force publishers to offer books to schools at discounted rates, while making up the difference by charging everyone else more. And again, fierce competition has been steadily bringing down the cost of Internet access.  Some Internet access is even free, if you are willing to wade through some advertising.

Colorado telephone customers would be better served rejecting secret government taxes. Technology, innovation and markets would better serve the needs of rural telecom users and schools.

Mike Krause wrote this article for the Independence Institute, a free-market think tank in Golden, https://i2i.org.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

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