In May, the IRS and the Department of Treasury eliminated the 3% federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on long distance phone service, or the so called Spanish American War Tax (See a great article in Budget and Tax News fore more information). As part of a broad tax package that passed by voice vote yesterday in the Senate Finance Committee, federal taxes on local phone service were also eliminated. However, the package was not immune from controversy. From Tax Analysts:
“The U.S. Senate Finance Committee on June 28 easily approved legislation to repeal the telephone excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. , but not without saddling it with the pet projects of nearly every Senate taxwriter.
Although telephone excise tax repeal enjoys wide support in both chambers of Congress and from the White House, Senate tax writers may have sunk its chances of enactment by adding over 75 unrelated tax provisions, many of them controversial. The bill includes several contentious IRS-related amendments, a pair of unpopular revenue raisers, several tax administration reforms, and a provision targeting tax evasion by pimps and prostitutes. And tax writers aren’t even done.”
Additionally, an Amendment by Senator Ron Wyden would permanently extend the moratorium on internet access taxes that was scheduled to expire in 2007. From the Houston Chronicle:
“Sen. Ron Wyden, D-Ore., who won approval of the ban in the Senate Finance Committee, said he didn’t want the Internet to fall victim to taxes like the telephone tax enacted for the Spanish-American War. ‘That war ended two centuries ago, and Congress is just now getting around to getting rid of the tax,’ Wyden said.”
If tax writers didn’t kill the chance for the final passage of the Finance Committee’s broad tax package, American taxpayers would escape telephone taxes for the first time since the Spanish American War in 1898. Additionally, internet access would be tax free for the foreseeable future.
To read previous Tax Foundation research on telephone taxes, click here and here.
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