Are mobile phone taxes a real problem?

Molly Wood Apr 16, 2012

April 17 is tax day.  So all you procrastinators out there better get going. While it’s easy to dwell on just how much we pay over to the government this time of year, we’re actually paying taxes all the time — when we buy things, when we fill up our gas tank and when we pay our cell phone bills.

Those phone bills are the focus of proposed legislation in Congress that would freeze cell phone taxes for five years. Scott Mackey is an economist at KSE Partners; he also works with the major cell phone companies. “The typical customer pays about 16 percent of their total bill in taxes and fees,” he says. “To compare, the sales tax you pay on everyday items that you purchase, that rate is about 7.4 percent.”

But why do the cell phone companies care how much we pay in taxes? Mackey says it’s pretty simple. People have limited budgets. “To the extent that taxes are driving up cost of people’s bills, they have to cut back in what kinds of services they buy and what they purchase,” Mackey says. He and other supporters of the legislation argue that these taxes disproportionately impact lower-income people, who depend on their mobile phones for phone and Internet service.

Christian Sandvig, who’s a professor at University of Illinois at Urbana-Champaign, isn’t buying it. He says the law would basically limit the ability of states and local governments to raise rates. “It doesn’t make any sense,” he says, “the prerogative of taxation should rest with voters in their cities and states.” He also thinks the talk about cell phone taxes is missing the bigger point: People don’t like their cell phone companies or their cell phone bills. “The wireless industry is one of the most unpopular industries in all of commerce, if you look at consumer satisfaction ratings,” Sandvig says.

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