Wireless Plans Shouldn't Be Taxed So Hard

Why are we so heavily taxing what we should be encouraging?

In 2019, Americans spent 3.1 trillion minutes talking on cell phones and sent over 2.1 trillion text messages, a considerable increase from the 52 billion texts sent in 2018. Despite our dependence on wireless cell service, the industry remains one of the most heavily taxed by both state and federal governments. The Tax Foundation estimated that in 2019, “wireless consumers will pay an estimated $17.1 billion in taxes, fees, and government surcharges to federal, state and local governments,” a billion-dollar increase from 2018.

The revenues raised through taxes on wireless plans dwarfed the $10 billion raised by the sale of alcoholic beverages in 2019. Substantial taxes on wireless plans place a financial burden on consumers, particularly lower-income Americans who are more dependent on wireless services and contribute to the digital divide.

Recognizing the significant financial burden placed on wireless customers and how it perpetuates the digital divide, federal, state and local state governments should consider lowering the taxes imposed on wireless services as part of wider deregulation efforts.

The taxes imposed on wireless carriers by the federal government, and ultimately paid by consumers, increases the costs of wireless plans and places an unnecessary financial burden on the finances of the 96% of Americans who own a wireless phone and need service. The primary federal tax on wireless plans is the Universal Service Fund (USF) that taxes interstate calls. The Tax Foundation notes that “a typical American household…can expect to pay about $260 per year in taxes, fees, and surcharges.” Much of this fee is due to a significant increase in the USF rate that rose from 18.8% to 24.4%.

Lowering the USF rate would not only substantially reduce the monthly bills Americans pay for their wireless service, but it would also make higher-quality plans available to lower-income Americans. Lowering the USF rate on wireless plans would also have the added benefit of reducing consumer dependence on government subsidies and enhancing consumer choice.

Excessive taxation on wireless plans disproportionately harms lower-income Americans as they are “more likely to rely on a cell phone for their phone service” than wealthier Americans. With less income, high wireless bills also consume a higher portion of their income. Recognizing wireless taxes disproportionately affect lower-income Americans, it should make it apparent that reducing taxes on wireless carriers would lower monthly bills and put more money in the pockets of low-income Americans.

The current tax structure also creates disparities in the amount consumers pay for their wireless plans. Across the country, individual states and municipalities set additional taxes on wireless plans in conjunction with the federal USF tax. These additional taxes differ greatly, creating a situation where Americans could pay different amounts for the same service. Illinois, for example, pay an additional tax rate at 22.14%, while consumers in Oregon are only forced to pay 2.27%.

To make the system fairer and ensure that Americans are paying the same amount for similar plans, regardless of where they live, states should take steps to standardize taxes on wireless consumers.

Reducing taxes on wireless plans would also go a long way to bridging the digital divide that exists in the United States. A study by the Pew Research Center found that 29% of Americans who earn less than $30,000 per year do not have access to a smartphone while 15% of people who earn between $30,000 and $99,000 do not own a smartphone. Reducing the overall cost of wireless plans through lowering taxes would not only help the finances of lower-income Americans, but it would also help end the digital divide by making plans on more advanced mobile technology more accessible.

With the continuing dependence of Americans on their wireless providers, the high taxes imposed by the federal and state governments presents a significant burden on millions of Americans across the country and contributes to the continuation of America’s digital divide. If legislators and regulators are serious about enhancing accessibility and bridging the digital divide, they should take steps to lower taxes on the wireless carriers.

Edward Longe is a research associate at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal.