How Crony corporatism & big government conspire to pad your wireless bill

This commentary originally appeared in Forbes on January 29, 2016.

Americans’ willingness to pay taxes often depends on whether they can see them. Property taxes hurt precisely because they are highly visible—when the assessment comes and the tax is levied, homeowners can see them clearly. Sales taxes are more of a steady drip—visible on receipts, but generally not too large unless one is buying a vehicle. Income taxes are a favorite of politicians, especially because of withholding—taxpayers don’t much miss cash that they never see.

States that don’t collect an income tax, such as Texas, rely on higher-visibility sales and property taxes to fund government. This results in taxpaying citizens who are more acutely aware of their tax burden.

In contrast, taxpayers in the 41 states that tax employment income may not appreciate the full extent of their state tax burden.

But, there are other ways to tax that are even stealthier than income taxes withheld from a paycheck: applying surcharges on utility bills to fund wealth transfer programs.

Using utility bill surcharges to fund government programs is a surreptitious way to tax, especially when elected representatives set up an autopilot system so they can avoid accountability at the ballot box.

This was seen recently in California where a body of unelected regulators decreed a tripling of surcharges levied on customers, reaching almost 8 percent of an average cell phone bill.

How this happened is a story of how big business and big government often work as a team to the detriment of the average American’s bank account.

Two years ago the California Public Utilities Commission, a five person board appointed by the governor, voted to subsidize cell phones for the poor. Universal Lifeline Telephone Service, a federal program with state counterparts, had previously only extended subsidies to landlines.

People flocked to sign up for the discounted service. What came next was “…an estimation problem” as dryly noted by a phone industry trade association leader, leading to three surcharge hikes in a year.

Californians getting subsidized phone service dropped by a third over seven years through 2013 as cheap, reliable cell phones displaced landlines. But cell phones weren’t eligible for the subsidies. Cell phone companies believed that 2.6 million people could be eligible for the subsidies if the rules were changed to allow cell phones to qualify.

Given the decline in landline use and the rise in cell phone use, one might be forgiven in thinking that the poor were simply abandoning subsidized landlines in favor of market rate cell phones. Regardless, wireless carriers and others lobbied the Public Utilities Commission to change the rules, making each household eligible for a monthly subsidy of $21.90.

By mid-2015, the number of Californians getting voice, text and data service underwritten by their neighbors doubled to 2.2 million, meaning that about 27 million adult Californians are paying for the cell phone plans of about 2.2 million people with a 7.894 percent surcharge tucked away on their money online statements—if they bother to look at them.

In total, California’s rob-Peter-to-pay-Paul telecommunications taxes and spending will hit almost $750 million this budget year, meaning every Californian who isn’t getting a benefit will be paying about $30 a year more on their phone bill for what is, by any definition, a government wealth redistribution program.

Phone companies in California have advocated for the lifeline program from the start, since it allows them to expand market penetration to poor consumers while boosting profits by making other people pay for it.

Ironically, the Orwellian-named Office of Ratepayer Advocates approved the huge increase in the phone surcharges, observing that without them, the subsidy program would run out of cash.

Most people believe that such programs are voted on by lawmakers whom voters can hold accountable, should they have a strong opinion on the efficacy of wealth transfer programs. This is not the case with many utility surcharges where regulators hold de facto taxing authority.

Low profile utility surcharge programs are replicated across the nation, shifting a bit of money from one pocket to another and in many cases, allowing powerful, well-connected corporations to boost revenues by forcing the middle class pay for others’ services. It’s another form of the crony corporatism that increasingly angers average American taxpayers.

It would be far more honest and transparent if lawmakers wanting to subsidize services for the poor would simply vote on the programs, and, if they thought it necessary, vote to raise taxes to do so, rather than use the phone company, gas company and electric company as stealth tax collectors and government benefit distributors.

Chuck DeVore is Vice President of National Initiatives at the Texas Public Policy Foundation. He was a California Assemblyman and is a Lt. Colonel in the U.S. Army Retired Reserve.