H.R. 1898 Would Repeal Federal Telecommunications Excise Tax

May 4, 2005

On April 27th, the appropriately named H.R. 1898 was introduced in the U.S. House of Representatives. This bill, chiefly sponsored by Representative Gary Miller (R-CA), would repeal the federal telecommuniations excise tax, a tax first enacted to help pay to prosecute the Spanish-American War of 1898.

The federal telecommunications excise tax charges a 3 percent levy on telephone service, and was expected to raise over $6 billion in revenues in 2004. The Joint Committee on Taxation, in a recent report, did acknowledge the policy problems with keeping the tax, but advocated reforming the tax if federal lawmakers do not repeal it.

Taxes are difficult to repeal once enacted, especially if they are not immediately repealed once the dedicated funds are no longer needed. The same difficulty is occuring in the states, where lawmakers in Idaho, North Carolina, and Ohio have or are considering the extension of once temporary tax increases.

The Tax Foundation released a Background Paper on the federal teleommunications excise tax in 2000, arguing that it should be repealed because it “violates basic economic principles.”

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