House Votes To Repeal Phone Tax

Friday, May 26th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — It may amount to a tax cut of only $24 a year for the average phone user, but Congress is rushing to repeal a 102-year-old tax that supporters call an outdated and unnecessary hindrance to Internet access.

``It's not only outlived its purpose, it's a classic example of bad tax policy,'' said Rep. Rob Portman, R-Ohio.

The House voted 420-2 Thursday to repeal the 3 percent federal excise tax, which traces its origins to an 1898 law enacted to finance the Spanish-American War when telephones were a novel luxury enjoyed by fewer than 1,500 households.

Tackling another vintage tax Thursday, the House Ways and Means Committee approved a bill to phase out inheritance taxes, which date to 1916. That bill is expected to reach the House floor in early June.

Today, the phone tax affects approximately 252 million telephone lines, including those connected to cellular phones, fax machines and computer modems. Democrats and Republicans who are jockeying to be viewed as technology-friendly agreed it was time to use a portion of the projected budget surplus to scrap it.

A person who spends $69 a month on local and long-distance calls — the average for residential service according to one consumer survey — pays about $24 a year for this tax. If that person also has a $30 monthly wireless bill, the total tax is around $34 a year.

The bill would phase out the tax in three steps, with full repeal coming Oct. 1, 2002, at a cost to the government of $20 billion over five years. Reps. Fortney ``Pete'' Stark, D-Calif., and John Murtha, D-Pa., voted against the measure, which now goes to the Senate.

Senate Finance Committee Chairman William Roth, R-Del., said the Senate version currently has 29 co-sponsors.

The Clinton administration supports the concept of a repeal but has expressed reservations about its cost. President Clinton has not threatened a veto, though.

The original 1-cent telephone tax imposed in 1898 was repealed in 1902, brought back to pay for World War I, repealed again in 1924 and then resurrected during the Depression in 1932. The tax rate has gone up and down over the years, been targeted for phase-out and then made permanent in 1990 to help reduce the budget deficit.

Although the Republican-led Congress has made tax cuts a priority this election year, the phone tax repeal gained bipartisan popularity.

So far, none of this year's major tax cuts have passed the Senate, but House Republicans say they're accomplishing their main election-year purpose.

``We're going to have a lot of good things to talk to our constituents about,'' said Rep. J.C. Watts, R-Okla.

That bill on inheritance taxes would gradually repeal them by 2010. The bill has 240 co-sponsors, including 45 Democrats, but Clinton is promising a veto because it would cost $104 billion over the phase-out period and some $50 billion a year after that. Estates under $675,000 are already exempt this year.

That high cost would jeopardize critical government spending and threaten efforts to ensure that Social Security and Medicare gain sound financial footing, opponents said.

``We can't just disregard our obligations,'' said Rep. Charles Rangel, D-N.Y., the top Democrat on the House Ways and Means Committee.

Sponsors said estate taxes frequently force family farms and small businesses to be sold or split up by heirs.


The telephone tax repeal bill is H.R. 3916.

The estate tax repeal bill is H.R. 8.

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