Commentary

Detroit News
July 13, 2007

Michigan's Proposed Telephone Tax Will Burden Consumers
Phone taxes raise price of a service essential for economic growth and empowerment
By Steven Titch

The Michigan House of Representatives will vote soon on a proposed public safety surcharge of $1.35 on all phone bills to fund a variety of law enforcement programs -- most of which have nothing to do with telecommunications. But what's even worse is that this tax will diminish access of Michigan individuals and businesses to phones and the Internet, making them less productive and competitive compared to other states.

According to the Tax Foundation, Michigan's slew of business, sales and income taxes have made it 12th in the nation in terms of tax burden per dollar of state gross domestic product. But telecommunications has so far been a bright spot in Michigan's otherwise dismal tax picture.

In fact, in a survey of 59 large-and medium-sized markets published by the Chicago-based Heartland Institute this May, Michigan had the distinction of imposing the smallest tax burden on communications services -- 5.81 percent, or about $11 on an average combined household bill of $152 for land line, wireless, cable TV and Internet services. That was almost half the national average of 13.52 percent -- or $20.50 on average.

All this might change. The bill, HB 4852, would raise all land line and wireless phone bills by at least $1.35. Since the bill's language calls for a tax on each "user," it is unclear whether the surcharge will be assessed per account or per line. If the latter, a family with two conventional phone lines and four cell phones will have to pony up another $8.10 a month. For a Michigan business, it would amount to a head tax on every mobile employee in its organization.

The bill's authors have dubbed the bill the Emergency Telephone Service Enabling Act. Nothing could be more misleading given that only about 24 percent of the revenues generated by the tax would actually go toward an emergency telecommunication system for Michigan public safety agencies. About 1 percent will go to the 911 non-emergency division. The remaining three-quarters will fund the Forensic Science Division of the Michigan State Police, the Traffic Law Enforcement and Safety Fund, a state criminal justice information system and the Michigan Commission on Law Enforcement Standards. The tax will also support probation and parole monitoring systems, the Bureau of Fire Services, and the Detroit Police Development crime lab.

Some of these services are no doubt important -- even critical. But if that's the case, lawmakers ought to give them priority in general fund spending.

Basic phone service provides a foundation for users to migrate to broadband. A tax would diminish access of low-income consumers to the Internet and new telecommunications technologies. In effect, it will widen the gap between the telecom haves and have-nots. The Heartland study found that as a proportion of income, low-income households pay up to 10 times more in telecom taxes than wealthier users.

The Michigan Senate has a proposal to fund emergency communications without a new tax. That bill deserves a closer look. Telecom taxes hurt everybody. They raise the price of a service that is essential for economic growth and empowerment. Slower growth means slower investment. That means less opportunity for Michigan residents. All of which make Michigan's telecom tax a losing proposition.

Steven Titch is an analyst at the Reason Foundation. An archive of Titch's work is here and Reason's telecom research and commentary is here.