According to a new study just out by economist Scott Mackey, taxes on wireless devices are now higher than they've ever been. The average wireless consumer now pays over 17 percent of his or her bill in taxes and fees. This rate is more than two and one-half times higher than the average sales tax, according to the study. In at least five states, consumers pay over 20 percent of their bill to state and local taxes and fees, and nearly half of the states extract at least 10 percent of the bill towards taxes. As the country moves to a wireless world for their primary phone and Internet access, these taxes continue to rise. At a time when the Obama administration has called for all Americans to have reliable access to the Internet, the taxing of a segment of the economy puts political words and actions at odds with one another, and it leaves consumers as the big losers.
As many studies have shown, excessive wireless taxes are unquestionably regressive in nature and are shouldered harshly on young adults, minority and fixed and low-income consumers. Many of these consumers rely on their wireless connection as their only phone or their only access to the Internet. As Internet becomes more of a basic communication need, for everything from news consumption to education, it becomes more and more worrisome that government continues to discourage wireless use in these communities.
There are also countless jobs tied to the wireless industry. The wireless industry drives employment for nearly four million workers. In fact, according to a study released last month, over 500,000 jobs have been created by the app economy. As the economy struggles to come out of the recession, continuing to impose onerous taxes on an area of growth in the world economy seems counterproductive.
Another newly released study from the Broadband Tax Institute shows that these taxes can greatly reduce investment in new broadband networks. The study, done by Dr. Raul Katz of Columbia University, looked at five years of data that showed infrastructure investment and its correlation to taxes. The results showed that the higher the taxes, the less investment in infrastructure and communications equipment in those states. It goes without saying that this lack of investment and spending by wireless providers means fewer jobs and reduced economic growth in the affected states.
Last year, the House passed the Wireless Tax Fairness Act, which could go a long way in putting an end to excessive taxation. Its companion bill in the Senate, however, is still awaiting action. The bill prohibits state and local governments from imposing any new taxes or fees on specific communication services for the next five years. Although it wouldn't do anything about the current excessive rates, it would help stop the piggybank raiding of localities and give some reprieve to consumers. Inaction by the Senate in this current session would mean an entire new round of haggling in the House and Senate, and a setback for consumers. Every year of delay means billions of dollars of losses for consumers, and it puts the nation one year away from universal broadband access.
Zack Christenson is a research fellow and writes on digital tech issues for the American Consumer Institute, an educational and research organization.