Time’s up on the Tax on Talking

We were delighted to see the full repeal of the federal excise tax on communications (FET) included for the first time in the Administration’s 2008 budget proposal. This tax has long outlived its original intent to fund the 1898 Spanish American War.

After losing several court cases challenging the validity of the tax, the IRS stopped collecting the FET on long distance and bundled calls.  This year, customers can collect a one-time refund on the previously collected taxes for those services when they file their 2006 income taxes with the IRS. But the tax on local service is still in place, and Congress needs to repeal this last vestige of the tax on talking.  The remaining 3 percent tax on local-only services is regressive – it places a disproportionate burden on low-income, rural and lifeline telephone subscribers.  And, thanks to changes in technology and calling patterns, the cost for repealing the tax on talking has dropped dramatically, from $4.6 billion in 2006 to an estimated $1.2 billion over 10 years in 2007.

Bipartisan support for repeal abounds:  the President has proposed a full repeal of the tax, Senator Schumer (S. 140) and Senator Ensign (S. 170) have introduced repeal bills in the Senate, and we expect similar legislation to be introduced in the House shortly.  Let’s immediately hang up on this outdated and regressive tax on talking.