Many consumers have heard the history of the federal excise tax on long-distance telephone service. The infamous tax was initiated in 1898 to help fund the Spanish American War. The war lasted less than six months, but the tax took 108 years to repeal.
Unfortunately, the Texas Legislature has been too willing to keep alive its own telecommunications tax long past its original expiration date.
In 1995, the Texas Legislature created the Telecommunications Infrastructure Fund (TIF), which it financed through a 1.25% assessment on telephone bills. The fund was designed to pay for the wiring and deployment of broadband services to public schools, libraries, and non-profit hospitals. The original legislation called for the tax to raise $1.5 billion over 10 years and then automatically disappear.
The program completed its objective ahead of schedule and awarded its final grants in 2002. The following year, the Legislature zeroed out the TIF Board’s budget and Gov. Rick Perry issued an executive order transferring oversight of the last few grants to the Texas Workforce Commission. At that point, the TIF tax should have gone away.
But as is often the case with “temporary” government fees and programs, the Legislature increased – and then removed – the limit on the amount the tax was allowed to collect, pushed the expiration date to 2011, and transferred the collected TIF taxes into the state’s general revenue fund. A special-purpose tax that has fulfilled its original objective is now being kept around to pay for routine government activities. Sound familiar?
A new study by the Texas Public Policy Foundation shows that Texas ranks among the highest states in overall tax burden on telecommunications services. The average Texas consumer pays a tax rate of almost 19% on telecommunications bills each month. That totals $26.51 a month for a consumer who has landline and cellular phone service, along with cable television.
Throw in the fact that Texas has a $14.2 billion budget surplus, and it should be a no-brainer to repeal the TIF tax and reduce the tax burden on Texas consumers.
Unfortunately, while the Texas House overwhelmingly passed legislation a month ago that would repeal the TIF tax, the bill has languished in the Senate Finance Committee for more than three weeks without a hearing.
Not surprisingly, this delay seems to be about money. If the state quits collecting the TIF tax, that is $210 million a year that is not available for future spending. Despite a massive budget surplus brought on by strong and continuing economic growth, some policymakers are finding it hard to let this money go.
Texans shouldn’t be led astray about this issue. The issue boils down to basic honesty and fairness. The TIF was created for a specific purpose and for a specific period of time. The original goal has been met and the policy rationale has disappeared. Given the disproportionate taxes they already pay on telecommunications, Texas consumers deserve relief. And yet the tax lives on.
The TIF tax has served its intended purpose and should be repealed. This would not only provide needed tax relief to consumers. It just might restore a little of their faith in politicians and their promises.
Bill Peacock is the Director of the Center for Economic Freedom at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. Kevin Holtsberry is a policy analyst for the Center for Economic Freedom.