[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
CELL TAX FAIRNESS ACT OF 2009
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
ON
H.R. 1521
__________
JUNE 9, 2009
__________
Serial No. 111-41
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida STEVE KING, Iowa
STEVE COHEN, Tennessee TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas
Georgia JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico TED POE, Texas
MIKE QUIGLEY, Illinois JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois TOM ROONEY, Florida
BRAD SHERMAN, California GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------
Subcommittee on Commercial and Administrative Law
STEVE COHEN, Tennessee, Chairman
WILLIAM D. DELAHUNT, Massachusetts TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina JIM JORDAN, Ohio
BRAD SHERMAN, California DARRELL E. ISSA, California
DANIEL MAFFEI, New York J. RANDY FORBES, Virginia
ZOE LOFGREN, California HOWARD COBLE, North Carolina
HENRY C. ``HANK'' JOHNSON, Jr., STEVE KING, Iowa
Georgia
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
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JUNE 9, 2009
Page
THE BILL
H.R. 1521, the ``Cell Tax Fairness Act of 2009''................. 3
OPENING STATEMENTS
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Chairman, Subcommittee on Commercial
and Administrative Law......................................... 1
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Ranking Member, Subcommittee on
Commercial and Administrative Law.............................. 10
The Honorable Jim Jordan, a Representative in Congress from the
State of Ohio, and Member, Subcommittee on Commercial and
Administrative Law............................................. 10
The Honorable Zoe Lofgren, a Representative in Congress from the
State of California, and Member, Subcommittee on Commercial and
Administrative Law............................................. 11
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Ranking Member, Committee on the Judiciary. 12
WITNESSES
Mr. Robert D. Atkinson, Ph.D., President, Information Technology
and Innovation Foundation
Oral Testimony................................................. 14
Prepared Statement............................................. 16
The Honorable Mara Candelaria Reardon, Indiana House of
Representatives
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Ms. Joanne Hovis, Columbia Telecommunications Corporation, on
behalf of the National Association of Telecommunications
Officers and Advisors, the National Association of Counties,
the Government Finance Officers Association, the United States
Conference of Mayors, and the Natiional League of Cities
Oral Testimony................................................. 26
Prepared Statement............................................. 28
The Honorable Joseph A. Gibbons, Florida House of Representatives
Oral Testimony................................................. 32
Prepared Statement............................................. 34
The Honorable Don Stapley, Maricopa County Board of Supervisors,
on behalf of the National Association of Counties, the
Government Finance Officers Association, the United States
Conference of Mayors, and the National League of Cities
Oral Testimony................................................. 36
Prepared Statement............................................. 39
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Federation of Tax Administrators,
submitted by the Honorable William D. Delahunt, a
Representative in Congress from the State of Massachusetts..... 63
APPENDIX
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from Robert D. Atkinson,
Ph.D., President, Information Technology and Innovation
Foundation..................................................... 77
Response to Post-Hearing Questions from the Honorable Mara
Candelaria Reardon, Indiana House of Representatives........... 80
Response to Post-Hearing Questions from Joanne Hovis, Columbia
Telecommunications Corporation, on behalf of the National
Association of Telecommunications Officers and Advisors, the
National Association of Counties, the Government Finance
Officers Association, the United States Conference of Mayors,
and the Natiional League of Cities............................. 84
Response to Post-Hearing Questions from the Honorable Joseph A.
Gibbons, Florida House of Representatives...................... 88
Response to Post-Hearing Questions from The Honorable Don
Stapley, Maricopa County Board of Supervisors.................. 93
CELL TAX FAIRNESS ACT OF 2009
----------
TUESDAY, JUNE 9, 2009
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:35 a.m., in
room 2141, Rayburn House Office Building, the Honorable Steve
Cohen (Chairman of the Subcommittee) presiding.
Present: Representatives Cohen, Delahunt, Watt, Sherman,
Lofgren, Scott, Franks, Smith, Jordan, and Issa.
Staff Present: (Majority) Norberto Salinas, Counsel; Adam
Russell, Professional Staff Member; and (Minority) Daniel
Flores, Counsel.
Mr. Cohen. This hearing of the Committee on the Judiciary
Subcommittee on Commercial and Administrative Law will now come
to order. Without objection, the Chair will be authorized to
declare a recess of the hearing. I will now recognize myself
for a short statement.
In 2000, the National Governors' Association issued a
report concluding that existing State and local
telecommunications tax systems were inefficient, complex, and
not competitively neutral. However, only some States have
reformed their telecommunications tax policies, with many
others possibly losing out on economic growth while costing
their residents billions of dollars in taxes and fees.
Most State and local tax policies do not reflect today's
market for communication services, particularly the wireless
industry. For example, some jurisdictions impose both a gross
receipts tax and a general sales tax on wireless services.
Others impose higher tax rates on wireless services when
compared to other services. Still other States arguably
discourage investments in telecommunications infrastructure by
imposing excessive taxes on the telecommunications industry's
capital investments.
These forms of discriminatory taxation affect the
pocketbooks of consumers. This has the effect of chilling
investment and impacting interstate commerce.
Having been a legislator, I am aware of the need for
revenue and also the difficulties sometimes in catching up with
technology.
Today we hold a hearing on H.R. 1521, the ``Cell Tax
Fairness Act of 2009.'' H.R. 1521 would impose a 5-year
moratorium on any new discriminatory tax with respect to mobile
services, mobile service providers, or mobile service property.
The legislation would prevent increasing taxes imposed solely
on wireless subscribers and wireless providers. More
importantly, the 5-year moratorium would provide the
telecommunications industry and the State and local governments
the opportunity to come together and work on reforming the
current communications tax structure. Doing so will maintain a
steady stream of revenue for State and local governments while
ensuring a fair tax burden among communications mediums,
including wireless services.
It reminds me of Lyndon Johnson: Let us come together.
This hearing will provide Members of the Subcommittee the
opportunity to hear testimony from State and local governments'
reliance on taxes and fees on wireless services. Members will
also hear testimony about how those taxes and fees impact
consumers and wireless providers.
Finally, Members will hear testimony about how important
affordable access to wireless services is to the growth of
broadband access in this country.
This testimony should help us determine whether Congress
should intercede with this legislation. I am cognizant of the
current plight that State and local governments are
experiencing vis-a-vis revenue. They are all cash strapped and
I can sympathize with their concerns. They receive lower
revenues but still are expected to provide essential services.
This legislation is not intended to affect current State
and local Government revenues. In fact, H.R. 1521 will not
prevent taxing authorities to continue to tax wireless services
and providers. It merely imposes a short moratorium on certain
new discriminatory taxes. We need fair tax policies to
encourage capital investment to help consumers.
Accordingly, I look forward to today's testimony.
I now recognize my colleague, the distinguished Ranking
Member of the Subcommittee, Mr. Franks, for his opening
remarks.
[The bill, H.R. 1521, follows:]
Mr. Franks. Thank you, Mr. Chairman. Mr. Chairman, I would
like to start by thanking the Chair for holding this hearing. I
really appreciate what you are doing today. Today's hearing is
the second in less than a year on this topic.
H.R. 1521, the Cell Tax Fairness Act of 2009, has 112
cosponsors in the 111th Congress. This is a nearly identical
amount of support to a similar bill in the 110th Congress. Mr.
Chairman, I am honored to be one of those 112 sponsors, as I
know you are. And I hope that with your leadership and that of
Ms. Lofgren, we can have a markup of this legislation in the
near future.
I support the legislation because it is my belief that
States and localities unfairly burden cell phone consumers with
excess taxes. Nationwide, the average tax on wireless service
is 15.19 percent, which is more than double the average sales
tax rate for all businesses, which is 7.07 percent. These tax
rates are more in keeping with sin taxes; that is, taxes on
alcohol and tobacco, than with general business taxes.
It is my understanding that these taxes on the wireless
industry are estimated to be over $15 billion a year. That is
an astonishing number, and something that warrants the
attention of the Subcommittee.
I know that discrimination, at least in this context, is
often in the eyes of the beholder. However, by any definition
imposing taxes on a wireless procedure that are more than
double what general businesses pay should be considered
discriminatory.
I will also continue to oppose discriminatory taxes or
excise taxes that are imposed by States that excessively punish
individual industries. I strongly believe that consumers should
be the ones to pick winners and losers and not government.
And finally, I am heartened to see the two State
representatives testifying today because I know that many
States are hurting financially. My State is currently trying to
close a $3 billion deficit, and I respect those concerned about
this bill's effect on State revenues. However, this legislation
merely freezes current tax structures on wireless services for
5 years, and I believe that is a worthwhile purpose and one
that will benefit consumers and technological advancements in
the long run.
And Mr. Chairman, I would like to welcome one of the panel
members especially today. Don Stapley is a member of the Board
of Supervisors in my county, and he is a good friend, and I
appreciate him being here. He is a little bit disoriented on
this legislation today, but that is all right. We understand.
That can happen even to people from Arizona. But I am very
grateful for him showing up here.
And with the Chairman's permission, I would like to yield
the balance of my time to Mr. Jordan for a brief opening. He
just wants to go 60 seconds.
Mr. Jordan. I thank the Ranking Member. And I want to also
thank the Chair and Ms. Lofgren for sponsoring this
legislation. I have to go to an Ohio delegation meeting here at
noon, so I won't be able to stay for much of the testimony.
I just want to say that I appreciate that this bill is
being brought forward. I am a cosponsor and, like the Ranking
Member indicated, it is good to see some State legislators here
who support this legislation as well. I understand that tax
fairness is important, particularly in this area. So with that,
I would yield back the balance of my time and thank the Ranking
Member for yielding.
Mr. Cohen. Thank you. I would now like to recognize the
distinguished lady from California, who is a sponsor of this
legislation, if she would like to make some remarks. Ms.
Lofgren.
Ms. Lofgren. Thank you, Mr. Chairman, and I very much
appreciate that you have scheduled this hearing today.
I introduced this bill because I believe that wireless
services and mobile devices are increasingly essential to
affordable broadband access in the United States.
Now, there is no doubt that expanding broadband speed and
access should be a national priority. We rank 15th out of 30
members of the OECD in broadband adoption per capita. So we
have a lot of catching up to do. Only about half of American
households have access to broadband, most to relatively slow
service, especially compared to what is widely adopted in other
countries like South Korea and Japan.
President Obama has recognized the imperative of building
broadband capacity. The FCC is developing a comprehensive plan
for national broadband as mandated by the stimulus legislation
Congress passed a few months ago. Broadband Internet is a
critical infrastructure. Just like highways or ports through
the power grid, it is essential to daily life and to future
economic growth.
We have come quite a long way with wireless, but this is
still an emerging technology, and we have a long way to go. In
the first quarter of 2008, 37 percent of U.S. mobile
subscribers paid for access to the Internet, and 15 percent
used it at least one a month. Now use of the new spectrum from
the 700 megahertz auction and the deployment of 4G networks are
just beginning. These technologies have tremendous promise, not
just faster Internet access, but also lots of new innovative
applications.
Anyone who spent even a few minutes looking at applications
on the iPhone, my favorite toy, has caught a glimpse of what
the future might hold. And we can't let discriminatory tax
policies deter innovation.
Now wireless is increasingly important to Internet access
for working class and lower income Americans, and that makes a
lot of sense. Cell phones have become an essential tool in life
for nearly everyone. If you are well off, you can afford
multiple Internet connections, such as cable and DSL at home.
But if you don't have as much money, you might rely on what you
can get on your phone.
Wireless users earning $20,000 to $40,000 a year access
mobile data applications more than users earning $100,000 a
year. And 39 million wireless subscribers have incomes of less
than $25,000 a year. Wireless is also crucial to extending
broadband to underserved rural areas. According to the FCC, at
the end of 2007 wireless broadband was the most widely
distributed of all Internet connection technologies. Ninety-
four percent of all ZIP codes have it.
Despite the importance of wireless services, they face a
disproportionate and growing tax burden. The average wireless
customer pays 15.2 percent in Federal, State and local taxes
and fees as opposed to 7.1 percent for other goods and
services. Taxes on cell phone service have gone up four times
faster than taxes on other goods and services between 2003 and
2007. These discriminatory tax rates will discourage both
consumer spending and industry investment in more advanced
wireless services like faster mobile data.
The 5-year moratorium in this bill will spur investment in
the near term. It will also encourage State and local
governments to harmonize and modernize their taxes in the
longer term. We have a similar moratorium on Internet taxes
that has spurred investment and innovation on the Internet.
These taxes are also regressive. This is not only because
lower income Americans rely more on their cell phones, the
taxes themselves are often highly regressive such as per line
flat fees.
I do recognize the concerns of State and local governments
and until this year I had actually spent more time on the Board
of Supervisors in Santa Clara County than I had in the House of
Representatives. I know that times are tough, and I am very
sensitive to the concerns of State and local officials.
However, this bill would not affect existing taxes. It only has
to do with new discriminatory taxes, taxes put in place after
enactment. And it would also not prevent States and
municipalities from raising taxes on wireless services unless
the taxes were discriminatory. So if you have a tax that you
are adopting on everything, wireless would not be exempted.
Now, I respect the autonomy of States and localities. But
when you have a nationwide need to deploy broadband as we do,
we can't allow local tax deployment plans to really interfere
with that national goal.
So I am grateful for this hearing, Mr. Chairman, and I look
forward to hearing from the witnesses, and I yield back the
balance of my time.
Mr. Cohen. Thank you, Ms. Lofgren. I would now like to
recognize the Ranking Member of the full Committee, a lion from
the State of Texas, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
Mr. Chairman, first of all, thank you for having this
hearing today on such an important piece of legislation, and I
would also like to thank our colleague on the Judiciary
Committee, Ms. Lofgren, for introducing H.R. 1521, the Cell Tax
Fairness Act of 2009, of which I am an original cosponsor.
There are now 112 cosponsors of this bill, Republicans and
Democrats alike, including many Members of this Committee. That
is a strong indication of the popular support that this
legislation enjoys.
It has become clear to me that telecommunications firms and
consumers, and in particular wireless services, are taxed
higher at the State level than many other businesses. In our
increasingly mobile economy, we should encourage the deployment
of cell phone and wireless devices, not inhibit their use
through higher taxes. The fact that these devices facilitate
interstate commerce certainly gives the Congress the authority
to constrain the States' taxing authority. However, just
because Congress has the authority to do something does not
necessarily mean that it should exercise that authority in
every case.
The taxing power has traditionally been within the
jurisdiction of the States. And given the state of our economy,
I sympathize with States' concerns about losing revenue because
of congressional intervention. However, I also know that
promoting mobile telecommunications is one way to increase
American commerce and generate American jobs. This bill is
specifically written to prevent discriminatory taxes after the
date of enactment. Any taxes already in effect will remain
untouched. So States will not lose any revenue as a result of
this proposal.
I do look forward to hearing from all of our witnesses to
see how we can balance the problem of disproportionate taxation
of telecommunications firms and consumers against the needs of
States' treasuries. Unfortunately, since I won't be able to
stay much longer at this hearing because of a previous
commitment, I do have some questions that I will submit for the
record, but I want to mention those questions now in hopes that
the panelists might address them.
One, are wireless taxes regressive, and do they
disproportionately impact lower and middle income consumers?
Two, does the bill limit States rights? And three, if Congress
passes this legislation, what impact would it have on State and
local revenues, on consumers, and on wireless service
providers?
Mr. Chairman, thank you and I will yield back.
Mr. Cohen. Thank you, Mr. Smith. If there are no other
statements from the Members, I am pleased to introduce our
first witness, and we introduce the witnesses before their
testimony. I want to thank each witness on the front end for
participating. Without objection, your written statement will
be placed in the record and we would ask you to limit your
remarks to 5 minutes. We have a lighting system that shows
green when you are starting and you are somewhere in between
the first 4 minutes, and yellow means you have got a minute to
go and red means you need to close.
After each witness has presented his or her testimony to
the Subcommittee, Members will be permitted to ask questions.
They also have a 5-minute limit.
Our first witness is Mr. Robert D. Atkinson. He is the
Founder and President of Information Technology and Innovation
Foundation, a Washington, D.C.-based technology policy think
tank. He is also the author of State New Economy Index series
and the book, The Past and Future of America's Economy: Long
Waves That Power Cycles of Growth.
He has an extensive background in technology policy, has
conducted groundbreaking research projects on technology and
innovation, is a valued adviser to State and national policy
members, and a popular speaker on innovation policy nationally
and internationally. Before coming to ITIF, Dr. Atkinson was
Vice President of the Progressive Policy Institute and Director
of that institute's Technology and New Economic Project.
Previously Dr. Atkinson served as the first Executive
Director of the Rhode Island Economic Policy Council, a public-
private partnership, including as members the governor,
legislative leaders, corporate, and labor leaders. And prior to
that he was Project Director of the former Congressional Office
of Technology Assessment. He has testified several times before
Members of Committees of Congress, so he knows what to expect.
He has appeared at various news outlets, including CNN,
FoxNews, MSNBC, NPR, and NBC Nightly news.
Thank you, Dr. Atkinson. I am looking forward to your
testimony. I am always amazed at people who have think tanks.
It is better than the other tanks, and 'tank' you for being
here as you begin your testimony.
TESTIMONY OF ROBERT D. ATKINSON, Ph.D., PRESIDENT, INFORMATION
TECHNOLOGY AND INNOVATION FOUNDATION
Mr. Atkinson. Thank you, Mr. Chairman. We are certainly a
think tank, not a do tank. So we think about things. And thank
you also, Mr. Franks, for the opportunity to be here today to
talk about the impact of discriminatory taxes on wireless
telecommunication services and on economic growth.
It is clear from looking at the evidence from a wide array
of economists that the U.S. economy has been transformed in the
last 15 years by information and communications technologies,
including wireless communications. One of the reasons why U.S.
productivity growth has been so strong compared to the prior
period there is a clear consensus among economists that it is
due to the IT revolution. What is also important is that
innovation in IT continues to emerge. We see that in
Congresswoman Lofgren's example of the iPhone. But that is the
tip of the iceberg. We are going to see a whole wide array of
new wireless uses. This is not a bill about cell phones alone.
This is about a revolution that is occurring in the U.S.
economy where wireless devices and wireless services are going
to be ubiquitous. And one of them, but certainly not the only
one, is going to be wireless broadband.
We are poised to see the deployment of new technologies in
the next, really the next 12 months of what is called 4G, where
you will get services of up to maybe 60, 70 megabits per second
on a wireless device. This now provides the opportunity for
what we call a third pipe going into the home and importantly a
new opportunity for people who might not have been able to
access broadband, particularly rural residents or lower income
residents.
When you look at taxation, there are basically three
principles of optimal taxation. One, it should induce little
change on consumer behavior. Secondly, it is not borne
disproportionately by low-income individuals, and, third, it is
not placed disproportionately on activities with positive
externalities. Unfortunately, discriminatory taxes on cellular
telecommunications violate all three principles.
There is an argument that opponents of the bill make that
this doesn't affect wireless adoption. It may not affect
consumers getting a cell phone. It is clear that most consumers
value that and have to have it. But what it does affect is
consumers getting ancillary services, buying more minutes,
getting broadband on wireless, getting a whole array of other
things. And there have been several academic studies that show
this quite clearly.
Rappoport, Alleman and Taylor found that for every new
dollar of discriminatory tax on wireless services, expenditures
by consumers go down by $1.60. Ingraham and Sidak found
slightly lower numbers, $1.23 to $1.29 negative elasticity. In
other words, consumers spend less.
In thinking about broadband and wireless broadband, Austan
Goolsbee when he was at the University of Chicago, Dr. Goolsbee
is now at the CEA, he found that actually it is much bigger for
broadband, with a $2.75 negative elasticity. So a $1 tax on
wireless broadband reduces the consumption of that service by
$2.75.
Not only that, but Goolsbee's work has shown that taxes on
wireless don't just affect the consumer side. They affect the
producer side and will reduce deployment, particularly in
slightly high cost areas.
Secondly, these have discriminatory effects on individuals
based on income. In one study, Rappoport, Alleman and Taylor
found that low-income individuals were as likely to adopt
cellular Internet service and wireless Internet services as
high-income individuals. So essentially this is not something
that just high-income people are getting and we can justify a
tax that way which may be legitimate, but that is not what is
happening here. Low-income people are big users of this. And
importantly, as GAO noted in a recent report, price is a
barrier to adopting broadband services. A recent study by the
Pew Internet and Society found that 35 percent of dial-up users
say the major reasons for not switching to broadband is price.
Thirdly, again really I think the key point here, is that
this is a service, a wireless service as well as IT in general,
has what economists call large positive externalities; in other
words, what a consumer does with this device doesn't just
benefit the consumer, it benefits all consumers. It benefits
businesses. It benefits government.
And there are several reasons for that. One is a
traditional notion of what are called network externalities. In
other words, as each individual user is able to use one of
these, other people are--it makes it easier and beneficial for
other people to use this.
Again a study by Austan Goolsbee and Klenow found that
there are these positive externalities, and in neighborhoods
where they are controlling for income and all these other
factors in neighborhoods where more people are using broadband,
it makes it easier for other people to use broadband. And the
reason is when some people in a neighborhood use it, other
people know about it. They talk about it and so there is this,
as I said, positive externality.
How much is that positive externality? Igraham and Sidak
found that every dollar of tax on wireless services, national
economic welfare falls by $1.23 to $1.95. So in other words,
adding $1 reduces overall economic welfare by $1.23 to $1.95.
Hausman at MIT found slightly smaller numbers, between 72
cents and $1.14 loss. So again either number you use those are
quite significant.
Finally, the numbers on broadband are even higher. Goolsbee
finds that it is anywhere around $3.55 national welfare loss.
I will just close by saying having worked for a governor
before in my past, I understand the issue of States and their
rights here. But this is an issue where essentially what States
do impacts the country as a whole. State taxes benefit the
State. They hurt the entire country, which to me is a reason
for Congress to act on this.
Thank you, very much.
[The prepared statement of Mr. Atkinson follows:]
Prepared Statement of Robert D. Atkinson
Mr. Chairman, Mr. Franks, and members of the Committee, I
appreciate the opportunity to appear before you today to discuss the
impact of discriminatory taxes on wireless telecommunications services
on economic growth and opportunity.
I am president of the Information Technology and Innovation
Foundation. ITIF is a nonpartisan research and educational institute
whose mission is to formulate and promote public policies to advance
technological innovation and productivity. Recognizing the vital role
of technology in ensuring American prosperity, ITIF focuses on
innovation, productivity, and digital economy issues. I have studied
and written extensively about the issues of information technology and
broadband and their effects on economic growth and societal
improvement.
importance of wireless communications
In the last 15 years, the U.S. economy has been transformed by
information and communications technology (IT), including wireless
communications. One result has been a significant increase in U.S.
economic productivity, with most economists agreeing that the increase
was due to the IT revolution.\1\ And as a key component of the IT
revolution, wireless technologies have contributed to that growth.
Moreover, innovation in the IT industry is continuing, with changes
in the wireless industry being among the most rapid. The development of
the Apple iPhone, and the introduction of similar offerings by
competing cell phone manufacturers, is but the most recent and visible
manifestation of this flourishing of innovation. Increasingly
businesses are using wireless technology to become more productive and
innovative, with everything from tracking inventory, to monitoring the
performance of their business on a real-time basis, to enabling mobile
workers to be connected. Consumers are using wireless for an
increasingly diverse and novel range of purposes, from health
applications like remote monitoring of diabetes to financial
applications like mobile banking and peer-to-peer payments.
In addition, more and more parts of the United States have access
to advanced 3G wireless services, and the rollout of advanced next
generation 4G services, such as Wi-Max and LTE, is proceeding. These
next generation services are important not just because they will
continue to serve as a platform for robust innovation in mobile
services and applications, but also because they offer the promise of
enabling the entry of a third broadband ``pipe'' to the home (to
compete with cable modem and DSL/fiber service). This new pipe offers
to not only bring additional competition and consumer benefits to all
Americans, but also to provide broadband services in some rural areas
that now cannot access wired broadband services. In addition, because
wireless broadband may provide lower priced broadband in all areas, it
has the potential to help lower-income Americans who to date have not
previously subscribed to broadband. In short, wireless services promise
to be a growing and more important part of the IT ecosystem in the
United States.
It is in this environment of innovation and digital transformation
that your Committee considers legislation to ban new discriminatory
taxes on wireless services. Imposing discriminatory taxes on wireless
services is in essence taxing one of the major engines of U.S.
innovation and economic growth, and as discussed below has significant
impacts on economic growth and economic fairness.
Principles of Optimal Taxation: Many tax economists suggest that
there are three principles of optimal taxation of commodities. An
efficient commodity tax: 1) induces little change in consumer behavior;
2) is not borne disproportionally by low income individuals and
households; and 3) is not placed disproportionally on activities with
strong positive externalities. Discriminatory taxes on cellular
telecommunications violate all three principles. I will examine each
principle.
discriminatory taxes on wireless services reduce consumer use
Opponents of federal legislation to ban the introduction of new
discriminatory taxes on wireless services argue that the rapid growth
in cellular telephone subscriptions suggests that the higher taxes on
cellular service have no negative impact. And they point to the rapid
growth of cellular telephone service. But the major impact of
discriminatory taxes is not on the decision to buy or not buy a cell
phone (although for some individuals this may be the case). Rather, it
is on the consumption of wireless services, with individuals facing
higher taxes purchasing plans with fewer minutes and fewer services.
And for a whole host of other services which are not as necessary, as
of yet, to daily life, discriminatory taxes reduce not only use but
adoption of these services. These include wireless data services and
wireless Internet.
Scholarly studies find that the impact of price (of which taxes are
a component) on wireless expenditures is quite high. Rappoport,
Alleman, and Taylor found that for the average monthly U.S. consumer
expenditure on cell phone service ($52 per month),\2\ every dollar of
additional tax reduces expenditures by more than $1.60.\3\ Ingraham and
Sidak find slightly lower, but still high, elasticities of demand of
between $1.23 and $1.29 (in other words, increasing taxes on wireless
services by $1 reduces consumption of the services by between $1.23 to
$1.29).\4\
Because wireless data services, including broadband Internet
access, are an even more discretionary purchase for most consumers, the
impact of taxes on wireless data and broadband are likely even higher.
Indeed, Austin Goolsbee finds the elasticities for broadband to be
between 2.15 and 3.50, with an average of 2.75. In other words,
increasing taxes on wireless data and Internet services by $1.00
reduces consumption of these services by an average of $2.75.\5\
This very high impact of taxes on consumer demand also affects
producer decisions on where to deploy services. As the GAO reported,
one of the most important factors for companies considering deploying
broadband to an area was the expected demand for broadband service.\6\
Since adoption rates drive demand, not only do wireless taxes affect
the ability of citizens to afford wireless Internet access, but they
could also discourage some companies from deploying 3G and 4G systems.
This conclusion is supported by research by Goolsbee who found that
``in several medium sized markets, applying a tax on broadband would
have reduced the potential producer surplus enough that suppliers would
not be able to cover their fixed costs and would choose to delay the
diffusion of broadband in those markets.'' \7\
distributional impacts of wireless taxes
It might be one thing if discriminatory wireless taxes affected
mostly demand from higher income consumers. But of all advanced
information technology and communications services, wireless is one of
the most widely adopted services, with wireless services much more
evenly distributed among income groups than fixed broadband. Rappoport,
Alleman, and Taylor find that while the highest income Americans
($100,000 or more in annual income) adopted fixed broadband at 125
percent the rate that the average income American adopted a set of
telecommunications and computing products (PCs, Internet, Broadband,
Mobile, Internet ready PCS and PCS Internet Subscriber (in 2003),
mobile phone adoption was only 40 percent higher while mobile Internet
use was just 44 percent higher. In other words, low income households
were almost as likely to adopt wireless services as higher income
households. Moreover, when examining just adoption of Internet-enabled
cellular services (as opposed to all the listed services and products),
low-income households (less than $15,000 per year) adopted the service
at about the same rates as high income households.
Because low income households are almost as likely to subscribe to
wireless services as higher income households, discriminatory taxes on
wireless services are more regressive than many other kinds of taxes.
And because of the structure of many of these taxes, the distributional
impacts are even worse. When some jurisdictions (like Baltimore, MD for
example) impose surcharges on service, the tax is not proportional to
use, but is the same on all users, regardless of income or use.
These discriminatory taxes play a role in limiting wireless data
and broadband adoption, particularly among low income households. As
GAO reported, the ``price of broadband service remains a barrier to
adoption of broadband service for some consumers'' and noted that
``households with high incomes were 39 percentage points more likely to
adopt broadband than lower-income households.''8 Likewise, the Pew
Internet and Society project found that just 25 percent of low income
Americans with less than $20,000 annual income subscribe to broadband
services, compared to 85 percent of households with over $100,000 in
income.9 Moreover, over one-third (35 percent) of dial-up users say
that price is the major reason for not switching to broadband.10
Raising the price of wireless broadband service through discriminatory
taxes will slow adoption of broadband, particularly as it's likely that
for many low income households in the future, wireless will be an
important means of accessing the benefits of the Internet.
impact of discriminatory wireless taxes on economic growth
Telecommunications taxes have been high historically because states
and localities could tax these with little fear of losing revenue to
consumers shifting their expenditures. For example, high retail sales
taxes could induce residents to shop in nearby jurisdictions with lower
rates. In contrast, taxing services that people consumed in their homes
was seen by states as a more reliable way to raise revenue. This is one
major reason why telecommunications services is in most jurisdictions
taxed more heavily than other goods or services.
This may once have made sense at a time when the principal
telecommunications service consumed by people was ``plain old telephone
service.'' But it certainly makes no sense now when telecommunications
services, including wireless, are key drivers of the digital economy.
In fact, many jurisdictions, especially the states and the federal
government, recognize that it is a driver, and are investing public
funds to promote it.
One of the reasons why governments are investing in digital
communications technologies, including wireless, is because they
exhibit what economists call positive externalities (an externality
occurs when the impacts of decisions by producer or consumers spill
over to the broader economy.) One of the most important externalities
from wireless services is network externalities. Network externalities
are the effects on a user of a product or service of others using the
same or compatible products or services. Positive network externalities
exist if the benefits are an increasing function of the number of other
users. In this case a good becomes more valuable to individual
consumers as others also purchase that good. The classic example is
telephone service, which becomes more valuable to a user if more people
are connected. Indeed, telephone network externalities have long been
recognized and have been a major rationale behind universal service
policies. The same kind of externality exists with wireless telephone
service. But externalities from wireless broadband are likely to be
even more significant, in part because broadband enables new services
to emerge that will benefit broadband users.
There are two kinds of network externalities from broadband, direct
and indirect. Direct externalities relate to subscribership. Just as
the fax system became more valuable when more people had faxes,
broadband becomes more valuable when more people have broadband; the
more likely others are to subscribe. This is in part because the
decision to purchase broadband is dependent in part on having
sufficient knowledge about it. Unlike a service like haircuts or a
product like TVs that most people are familiar with and can accurately
value, fewer people are familiar with wireless data and Internet
services and cannot always value their benefits.
Empirical evidence suggests that this is a factor that affects
subscribership. Goolsbee and Klenow found that people are more likely
to buy their first computer if they live in areas where a high
proportion of households own computers or if a high fraction of their
friends and family own computers--even controlling for other factors
affecting computer ownership. If ownership rates are 10 percent higher
in one city than another in a given year, the gap will be 11 percent
the following year, assuming all else stays constant.\11\ They explain
this effect on the basis that the number of experienced and intensive
computer users creates a ``spillover'' effect for non-users. They
conclude that the effect is most probably related to the use of e-mail
and the Internet--consistent with the view of computers being the hub
of an information and communications network. But it is also likely to
be related to the fact that people who have friends and neighbors with
broadband are more likely to be able to better understand its value.
While dial-up connections also enable network externalities for
applications like email, only wireless broadband would generate them
for mobile applications. Moreover, these externalities are likely to be
higher in lower-income neighborhoods where individuals may have less
familiarity with these technologies.
Indirect network externalities from broadband relate to its effect
on applications and content that requires broadband transport to work
effectively. One reason why broadband take-up is not higher is because
data-rich applications that could be accessed over broadband have not
developed faster. Why develop mobile applications, especially ones that
need moderate- to high- speeds, when very few people would be able to
access them? This ``chicken-or-egg'' issue slows deployment of wireless
broadband. More data-intensive applications would make mobile broadband
more valuable, while more mobile broadband subscribers would make data-
intensive applications more commercially viable. Indeed, more mobile
broadband would spur the development of a whole host of new
applications that are not viable now.
The second major kind of broadband externality relates to the fact
that broadband enables consumers to become more efficient, thus in turn
driving higher rates of productivity and economic growth. In the old
economy producers produced and consumers consumed. Producers invested
in new capital equipment to produce goods and services more efficiently
and consumers in turn bought these cheaper goods and services. This
dichotomy between producers and consumers is blurring in the new
digital economy where a whole host of digital tools are enabling
consumers to become, in the words of futurist Alvin Toffler,
``prosumers'' who act at the same time as both consumer and producer.
Whether it's conducting mobile banking, getting real time
information on traffic conditions, or engaging in e-government
services, mobile Internet is enabling self-service and becoming an
important share of the economy, helping to boost productivity and to
increase consumer convenience. Indeed, with the service sector now
accounting for over 80 percent of employment, prosumerism will simply
have to play a much larger role if we are to continue to boost incomes
and economic growth. Wireless broadband promises to be a key technology
for boosting prosumer productivity.
Wireless Internet is also improving Americans' quality of life. For
example, using a wireless data reader that connects to standard
telephones, patients can securely transmit the medical data recorded by
these medical devices to their health care provider. Their physicians
can then review the patients' health information remotely, thereby
reducing the number of office visits, a major benefit for patients with
chronic diseases or who need frequent care. Similarly, obstetricians
can remotely monitor the blood pressure and fetal heart beat of their
patients at home, rather than requiring the patients to be admitted to
the hospital.\12\ Wireless is also helping older Americans minimize the
risks associated with solitude. Currently, for example, older adults
and individuals with disabilities can use a personal emergency response
system so that with the push of a button they can call for medical
assistance. Personal emergency response devices typically consist of
two components: a wearable wireless transmitter and a telephone unit
that connects to an emergency response center. Such devices can
particularly help adults who are at risk of a stroke or falling live
independently. They can also save money by reducing the length of time
for inpatient hospital care or nursing home care.
Economic studies of the impact of taxes on wireless service support
this argument that reduced wireless activity will have negative
economic impacts. Ingraham and Sidak find that for every $1 of tax,
national economic welfare falls by between $1.23 and $1.95, depending
on the level of the tax existing in a jurisdiction (if a state with
already high taxes on wireless service increases taxes even more, the
overall economic welfare loss would be 1.95).\13\ Hausman also finds
significant, albeit somewhat smaller, impacts of societal economic
welfare. He finds that for every additional dollar raised in taxes on
wireless services, the marginal efficiency cost to the economy is
between $0.72 and $1.14.\14\ In other words, when a jurisdiction adds a
tax on wireless service, for every dollar it receives, society loses
between $0.72 and $1.14.
The impact of taxes on wireless broadband is likely to be even
higher, given the even-broader network and prosumer externalities. In
fact, Goolsbee finds this to be the case, with the overall economic
welfare loss from $1 of taxes on broadband (wireless or wired) being
between $3.46 and $5.15.\15\ In other words, for every dollar raised in
taxes, society as a whole loses at least $3.46.
the rationale for federal action
Even with these significant negative impacts from discriminatory
wireless taxation, some argue that jurisdictions should be free to
impose these taxes. If these negative effects were confined to the
jurisdiction imposing the taxes, the opponents of legislation would
have a stronger, but in my view, still inadequate case. But the costs
of discriminatory wireless taxation are not only borne by residents of
the jurisdiction, but by all Americans. In particular, while sub-
national jurisdictions also benefit from higher levels of wireless
adoption, there is an asymmetrical distribution between the costs and
benefits of taxes on wireless services. When jurisdictions tax wireless
services, they receive all of the financial benefit of the tax, but the
net social cost of lower rates of wireless service access extends
beyond the jurisdictions' borders to affect residents and businesses
across the entire nation.
Second, opponents of this legislation argue that it will hurt state
and local fiscal health. But this legislation only prohibits new
discriminatory taxes. Moreover, states and localities will benefit as
higher levels of productivity generate lower prices for their citizens.
In addition, the economic benefits of a healthy national economy will
provide state tax administrators opportunities to increase their state
tax revenue.
Third, opponents will argue that this simply shifts taxes from one
service or product to others. Of course it does. But that's not the
point. The point is that the negative effects of taxes on wireless
services are higher than on most other services or products. For
example, Hausman finds that the effect on welfare of general taxation
and income taxation is between 54 to 71 percent less costly to economic
efficiency and net economic welfare than taxes on wireless.\16\ And
taxes on items with negative externalities, such as products like
petroleum which emit greenhouse gas emissions, would have positive
effects on economic welfare. Opponents also argue that many types of
industries are subject to their own special taxes. But again, the major
reason why discriminatory wireless taxes are a bad idea is not because
discriminatory taxes themselves are a bad idea. Taxes on tobacco
products are rightly justified by the adverse health effects from
smoking. Rather, it is discriminatory taxes on products or services
with large positive externalities that are problematic.
conclusion
Wireless innovation is likely to continue to bring new consumer
functionalities, business and government benefits and overall economic
growth. However, the evidence clearly shows that taxes on wireless
services, particularly discriminatory taxes, have a clear negative
effect on adoption of these services and because of that, negative
effects on both U.S. economic growth and economic opportunity for all
Americans, and lower income Americans especially.
Notes:
1. Robert D. Atkinson and Andrew S. McKay, ``Digital Prosperity:
Understanding the Economic Benefits of the Information Technology
Revolution,'' (Washington, DC: The Information Technology and
Innovation Foundation, 2007) .
2. U.S. Bureau of Labor Statistics, ``Spending on Cell Phone Services
Has Exceeded Spending on Residential Phone Services,'' 2007,
.
3. Paul Rappoport, James Alleman, and Lester Taylor, ``Household
Demand for Wireless Telephony: An Empirical Analysis,'' Presentation to
the 31st Annual Telecommunications Policy Research Conference, Sept.
19, 2003, George Mason University, Arlington, Va.
4. Allan T. Ingraham and J. Gregory Sidak, ``Do States Tax Wireless
Services Inefficiently? Evidence on the Price Elasticity of Demand,''
Virginia Tax Review, Vol. 24: 249-261, 2004.
5. Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss
of Taxing New Technology,'' Contributions to Economic Analysis &
Policy: Vol. 5 : Iss. 1, Article 8. (2006) .
6. Ibid.
7. Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss
of Taxing New Technology,'' NBER Working Paper 11994 (National Bureau
of Economic Research, Feb. 2006): .
8. Ibid.
9. Pew Internet and American Life Project, Home Broadband Adoption
2008.
10. Ibid.
11. Austan Goolsbee and Peter Klenow, ``Evidence on Learning and
Network Externalities in the Diffusion of Home Computers,'' Journal of
Law and Economics, October 2002, Vol XLV (2, part 1): 317-344.
12. E. Kyriacou, et al., ``Multi-Purpose Healthcare Telemedicine
Systems with Mobile Communication Link Support,'' BioMedical
Engineering Online 2 (2003), (accessed July 24, 2008).
13. Ingraham and Sidak, op. cit.
14. Jerry Hausman, ``Efficiency Effects on the U.S. Economy from
Wireless Taxation,'' National Tax Journal, vol. LIII, No. 3., Part 2,
733-742.
15. Austan Goolsbee, ``The Value of Broadband and the Deadweight Loss
of Taxing New Technology,'' op. cit.
16. Jerry Hausman, op. cit.
__________
Mr. Cohen. Thank you, Dr. Atkinson.
Our next witness is State Representative Mara Candelaria,
from the State of Indiana. She has experience in Congress,
having worked for U.S. Congressman Peter Visclosky and has
worked with the Democratic Party. As a former NCSL executive
committee member, I welcome you here and appreciate your work
in the Indiana State House of Representatives.
Would you begin your testimony?
TESTIMONY OF THE HONORABLE MARA CANDELARIA REARDON, INDIANA
HOUSE OF REPRESENTATIVES
Ms. Candelaria Reardon. Thank you, Chairman Cohen and
Ranking Member Franks, Members of the Subcommittee. My name is
Mara Candelaria Reardon, and I have the honor of representing
the 12th House District in Indiana. I serve on the
Environmental Affairs, Government and Regulatory Reform and
Ways and Means Committee in Indiana's House.
Thank you for the opportunity to appear before you this
morning to offer my support for H.R. 1521, the Cell Tax
Fairness Act of 2009.
The Cell Tax Fairness Act takes a thoughtful, pro-consumer,
pro-broadband approach that will help to ensure affordable
wireless services for my constituents and Indiana's nearly 4.7
million wireless subscribers.
Congresswoman Lofgren and Congressman Franks are to be
commended for the broad bipartisan support they have garnered
with this legislation. As a State legislator and particularly
as a member of the Government and Regulatory Reform and Ways
and Means Committee, any Federal legislation that places
parameters on a State's ability to tax is something that I
believe should be done sparingly, judiciously and, most
importantly, does absolutely no harm.
I believe that H.R. 1521 meets these criteria.
Our system of Federalism grants State and local
policymakers with the ability to determine how States should
levy taxes on individuals and businesses that reside within
their respective jurisdictions. As a member of Indiana's Ways
and Means Committee, I am sensitive to preserving the State's
taxing authority to fund government services. But as a
legislator tasked with writing Indiana's tax laws, I also
believe that another important precept of our Nation's tax
structure is that taxes should be levied equitably on our
citizens, particularly when multiple jursidictions have the
ability to tax.
In Indiana my constituents pay a 9.55 percent rate in State
and local taxes and a relatively modest combined rate of 13.74
percent in State, local, and Federal taxes, fees, and
surcharges for their wireless services, as compared to the
national average of 15.2 percent. Nevertheless, Indiana's
wireless consumers are now effectively taxed twice. They not
only pay the State sales tax like consumers of other goods, but
also included is the utilities receipts tax. In several States,
consumers pay taxes, fees, and surcharges in excess of 18
percent on top of their monthly bills for their service. When
tax rates reach those levels, as they do with alcohol and
tobacco, the purpose is usually to inhibit use.
Wireless services are no longer a luxury in our society.
They have become a necessity. Preserving affordability should
be an important public policy goal. H.R. 1521 provides a
measured approach by only precluding new discriminatory taxes
and fees from being added on an already excessive level of
taxation imposed upon wireless consumers.
Importantly, the legislation recognizes the revenue needs
of States and localities and does not take away any existing
revenue from State or local governments. In fact, H.R. 1521
allows States and localities to raise wireless taxes if done in
conjunction with an increase in taxes on other general goods
and services.
My focus here this morning will be to provide some
historical context as to how we got here and where we are today
and why I believe taking a time out from imposing new
additional discriminatory taxes on wireless services is
important to American consumers and consistent with principles
espoused by the National Conference of State Legislators.
The tax structure imposed on the communications industry
today is a holdover from the days when the industry was
operated by Ma Bell as a regulated utility. This tax structure
was first instituted long before I entered public office and
well before the first wireless call was ever made. As some may
recall, as regulated utilities telecommunications providers
were subject to taxes under statutes applicable to public
utilities. The taxes imposed upon included gross receipts,
franchise, and other industry-specific taxes that were passed
on to consumers in the rates as part of the regulatory rate
setting process. The phone company never had to worry about
consumers looking for a cheaper alternative because there was
no competition in the marketplace. State and local governments
could tax telecommunications services at a much higher rate
than other goods and services without worrying about
constituent backlash because the natural reaction was, it is
just the phone company raising my rates again.
Fast forward to today, and the communications marketplace
is drastically different than it was 20 years ago. Consumers
have a myriad of options to choose from to be their
communications provider as well as voice and data plans to meet
their individual needs.
However, the legacy tax structure remains in place. Our
Federal and State income tax is structured such that if you
earn more you pay more in taxes. That is not the case with
respect to the payment of wireless taxes.
As I mentioned previously, Indiana has approximately 4.7
million subscribers. Of that 4.7, nearly 14 percent of
Indiana's households have cut the cord and are wireless only.
As of October, 2008, 4.5 percent of Indiana's wireless
subscribers had income levels of less than $50,000 and 61.7
percent had income levels of less than $75,000. Regardless of
whether someone is making $25,000 annually or $125,000
annually, they will pay the same tax rate on their purchases of
wireless services. With the national average of 15.2 percent,
consumers who are of lower or moderate incomes pay
disproportionately more for the same services than those with
higher incomes.
Why is this important to bear in mind? Access to wireless
services is no longer a luxury for a select few but rather a
vital necessity, particularly for those facing economic
challenges.
In preparing for this hearing, I took the opportunity to
read an April 27 Dear Colleague circulated by Congresswoman
Lofgren and Congressman Franks. The Dear Colleague highlighted
an March 23 Washington Post article chronicling how low-cost
cell phones provide an essential lifeline to the homeless.
When you consider how important wireless services have
become to consumers today, taxing those services at an
excessive level is counterproductive.
As I mentioned earlier, I am sensitive to the importance of
preserving State and local governments' ability to fund
government services. Current tax revenues in Indiana are down 8
percent from last year. But as policy makers it is important
that we also finance public services not to target one good or
service for disparate tax treatment.
I can go on.
Mr. Cohen. I know you can but you also can't.
Ms. Candelaria Reardon. Thank you for the opportunity.
[The prepared statement of Ms. Candelaria Reardon follows:]
Prepared Statement of the Honorable Mara Candelaria Reardon
Chairman Cohen, Ranking Member Franks and members of the
Subcommittee, my name is Mara Candelaria Reardon, and I have the honor
of representing House District 12 in Northwest Indiana. I serve on the
Environmental Affairs, Government and Regulatory Reform and Ways and
Means Committees in Indiana's House of Representatives.
Thank you for the opportunity to appear before you this morning to
offer my support for H.R. 1521, the ``Cell Tax Fairness Act of 2009.''
The Cell Tax Fairness Act takes a thoughtful, pro-consumer, pro-
broadband approach that will help to ensure affordable wireless
services for my constituents and Indiana's nearly 4.7 million wireless
subscribers.\1\ Congresswoman Lofgren and Congressman Franks are to be
commended for the broad bi-partisan support they have garnered with
this legislation.
---------------------------------------------------------------------------
/1/ FCC's Local Competition Report, September 18, 2008
---------------------------------------------------------------------------
As a state legislator and particularly as a member of the
Government and Regulatory Reform and Ways and Means Committees, any
federal legislation that places parameters on a state's ability to tax
is something that I believe should be done sparingly, judiciously and
most importantly, does no harm. I believe that H.R. 1521 meets these
criteria. Our system of Federalism grants state and local policymakers
with the ability to determine how states should levy taxes on
individuals and businesses that reside within their respective
jurisdictions. As a member of Indiana's Ways and Means Committee, I am
sensitive to preserving a state's taxing authority to fund government
services.
But as a legislator tasked with writing Indiana's tax laws, I also
believe that another important precept of our nation's tax structure is
that taxes should be levied equitably on our citizens, particularly
when multiple jurisdictions have the ability to tax. In Indiana, my
constituents pay a 9.55% rate in state and local taxes, and a
relatively modest combined rate of 13.74% in state, local and federal
taxes, fees and surcharges for their wireless services as compared to
the national average of 15.2%.
Nevertheless, Indiana's wireless consumers are now effectively
taxed twice. They not only pay the state sales tax like consumers of
other goods, but also included is the Utility Receipts Tax.
In several states, consumers pay taxes, fees and surcharges in
excess of 18% on top of their monthly bills for their service. When tax
rates reach those levels, as they do with alcohol and tobacco, the
purpose is usually to inhibit use. Wireless services are no longer a
luxury in our society; they have become a necessity. Preserving
affordability should be an important public policy goal.
H.R. 1521 provides a measured approach by only precluding new
discriminatory taxes and fees from being added on an already excessive
level of taxation imposed upon wireless consumers. Importantly, the
legislation recognizes the revenue needs of states and localities and
does not take away any existing revenue from state or local
governments. In fact, H.R. 1521 allows states and localities to raise
wireless taxes if done in conjunction with an increase of taxes on
other general goods and services.
My focus here this morning will be to provide some historical
context as to how we got to where we are today and why I believe that
taking a ``time-out'' from imposing new, additional discriminatory
taxes on wireless services is important to American consumers and
consistent with principles espoused by the National Conference of State
Legislatures.
historical context regarding communications taxes
The tax structure imposed upon the communications industry today is
a holdover from the days when the industry was operated by Ma Bell as a
rate regulated utility. This tax structure was first instituted long
before I entered public office and well before the first wireless call
was ever made. As some may recall, as regulated utilities,
telecommunication providers were subject to taxes under statutes
applicable to ``public utilities.'' The taxes imposed included gross
receipts, franchise and other industry-specific taxes that were passed
on to consumers in the rates as part of the regulatory rate setting
process. The phone company never had to worry about the consumer
looking for a cheaper alternative because there was no competition in
the marketplace. State and local governments could tax
telecommunication services at much higher rates than other goods and
services without worrying about constituent backlash because the
natural reaction was, ``it's just the phone company raising my rates
again.''
Fast forward to today and the communications marketplace is
drastically different than it was 20 years ago. Consumers have a myriad
of options to choose from to be their communications provider, as well
as voice and data plans to meet their individual needs. However, the
legacy tax structure remains in place.
regressive nature of wireless taxes
Our Federal and State income tax system is structured such that if
you earn more, you pay more in taxes. That is not the case with respect
to the payment of wireless taxes. As I mentioned previously, Indiana
has approximately 4.7 million subscribers. Of that 4.7 million, nearly
14 percent of Indiana's households have ``cut the cord'' and are
wireless only.\2\ As of October of 2008, 45.7% of Indiana's wireless
subscribers had income levels of less than $50,000 and 67.1% had income
levels less than $75,000.\3\ Regardless of whether someone is making
$25,000 annually or $125,000 annually, they will pay the same tax rate
on their purchases of wireless services. With a national average
wireless tax rate of 15.2%, consumers who are of lower or moderate
income levels pay disproportionately more for the same service than
those with higher incomes.
---------------------------------------------------------------------------
\2\ Centers for Disease Control NCHS March 11, 2009
\3\ ComScore October 2008
---------------------------------------------------------------------------
Why is this important to bear in mind? Access to wireless services
is no longer a luxury for a select few, but rather a vital necessity,
particularly for those facing economic challenges. In preparing for
this hearing, I took the opportunity to read an April 27th ``Dear
Colleague'' circulated by Congresswoman Lofgren and Congressman Franks.
The
``Dear Colleague'' highlighted a March 23rd Washington Post article
chronicling how low-cost cell phones provide an essential lifeline to
the homeless and those who are experiencing economic difficulty. The
article clearly brings into focus what many of us take for granted, but
for others provides some modicum of much needed normalcy.
``Having a phone isn't a privilege anymore--it's a necessity,''
said Rommel McBride, who spent about six years on the streets
before recently being placed in a city housing program. . . . A
cell phone is the only way you can call to keep up your food
stamps, your housing application, your job. When you're living
in a shelter or on the streets, it's your last line of
communications with the world.''
When you consider how important wireless services have become to
consumers today, taxing these services at such an excessive level is
counterproductive. Mr. McBride happens to live here in Washington,
D.C., but there are thousands, if not millions of people throughout
this country who rely on their cell phones to assist in finding a job;
locating a place to live; keeping in touch with loved ones and friends;
protecting their personal safety; accessing the Internet as well as a
variety of other uses. For many, their wireless phone is their
lifeline.
federalism perspective
As I mentioned earlier in my testimony, as a state legislator, I am
very sensitive to the importance of preserving state and local
government's ability to tax in order to fund government services.
Current tax revenues in Indiana are down 8% from last year. But as
policymakers, it's also important, as we finance public services, not
to target one particular good or service for disparate tax treatment as
compared to others.
For example, state and local wireless taxes and fees increased from
10.2% to 11% between 2003 and 2007--this resulted in an increase in the
rate of taxes on sales of wireless services that was four times the
increase in the rate of taxes imposed on sales of other competitive
goods and services.
Opponents of H.R. 1521 claim that this legislation drastically
departs from longstanding principles of federalism and that it provides
favorable tax treatment to the wireless industry. Under our Federalist
system, the federal government is authorized to exercise only those
powers which are expressly provided by the Constitution, with all other
powers reserved to the states as set forth under the 10th Amendment.
Thus, the federal government's powers are limited. However, under the
Commerce Clause, Congress is expressly granted the power to regulate
commerce among the states. Due to the mobile nature of wireless
services and the ability to use such services across the country, the
provision of wireless services is clearly interstate commerce and well
within the power of Congress to ``regulate commerce among the states.''
Additionally, the 14th Amendment provides that ``. . . No State
shall . . . deny to any person within its jurisdiction the equal
protection of the laws'' and further specifies under Section 5 that
Congress shall have the power to enforce, by appropriate legislation,
the provisions of this article.
In my opinion, H.R. 1521 does not dramatically depart from our
federalist principles. In the mid 1970s, Congress passed the federal 4-
R Act which precluded states from discriminatorily taxing the railroad
industry. And more recently in 2007, this Subcommittee played a leading
role in the extension of the Internet Tax Freedom Act.
It's my understanding that the primary beneficiary of this
legislation is the American wireless consumer, not the wireless
industry. In 2007, Indiana subscribers paid over $326 million in
wireless taxes and fees. The carriers remit these taxes to the state,
but it is the consumers that pay the overwhelming majority of these
taxes, not industry. I appreciate the temptation to try and obfuscate
the issue, but if this legislation results in a five to ten dollar
savings each month for my constituents, while at the same time, the
state of Indiana continues to collect $326 million or more annually in
wireless tax revenues--I consider it a win-win.
Last year, wireless consumers across the country paid nearly $21
billion in state, local and federal taxes and fees imposed on their
wireless services to fund government services. By anyone's measure,
that is a lot of money for one subset of consumers to pay for an
essential service. H.R. 1521 does nothing to jeopardize that revenue
stream. In all likelihood, state and local revenues from wireless
services will continue to grow if this legislation is enacted.
H.R. 1521 provides a common sense solution to a growing problem.
Clearly, it is a bill that that has broad, bipartisan appeal, as
evidenced by over 100 cosponsors, which is why I strongly support the
passage and enactment of H.R. 1521, the ``Cell Tax Fairness Act of
2009.''
Thank you again for this opportunity to offer my thoughts. I would
be happy to answer any questions that you may have.
__________
Mr. Cohen. Thank you, Representative Reardon. We do need to
try to keep to the red light.
Our third witness is Joanne Hovis. Ms. Hovis is President
of Columbia Telecommunications Corporation, which is a
communications engineering and consulting firm. She is an
attorney. She has practiced both in Chicago and in Washington,
is an authority on municipal and community broadband topics and
on governments' role vis-a-vis. She has represented several
impressive clients and knows when 5 minutes are 5 minutes. You
are recognized.
TESTIMONY OF JOANNE HOVIS, COLUMBIA TELECOMMUNICATIONS
CORPORATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF
TELECOMMUNICATIONS OFFICERS AND ADVISORS, THE NATIONAL
ASSOCIATION OF COUNTIES, THE GOVERNMENT FINANCE OFFICERS
ASSOCIATION, THE UNITED STATES CONFERENCE OF MAYORS, AND THE
NATIIONAL LEAGUE OF CITIES
Ms. Hovis. Thank you, Mr. Chairman. Chairman Cohen,
distinguished Members, thank you for the opportunity to speak
to you here today. I serve as a member of the Board of
Directors of the National Association of Telecommunications
Officers and Advisors, and I am very pleased to be here on
behalf of NATOA as well as the U.S. Conference of Mayors, the
National League of Cities, National Association of Counties,
and the Government Finance Officers Association. I do focus on
community broadband issues, working for State and local
government and nonprofits across the country, and I am a long-
time advocate for the need for greater broadband, bigger
broadband, more broadband, and more affordable broadband in the
United States. And so I commend all of you and agree with much
of what Ms. Lofgren said just a few minutes ago that the need
for attention to this issue is enormous.
What I would like to talk about here today, though, is
whether this particular piece of legislation will really result
in deployment of a lot more broadband or affordable broadband.
The issue of tax policy, tax is not my area. That is for
elected officials to address because they are answerable to
their constituency. I would like to, rather, correct what I
believe are some of the misunderstandings surrounding the
economics of the wireless industry and the actual barriers to
deployment of wireless broadband services to all areas of our
country.
First and foremost, the current tax treatment of wireless
services by Federal, State, and local authorities has not
hindered product innovation, service growth, or industry
profitability. This industry, the wireless communications
industry, is strong and successful. Growth has been explosive
in high-density areas of the country where the carriers have
chosen to invest and to deploy networks. In 1995, there were
just under 34 million cell phone subscribers in the United
States. By 2008, that number 270 million, 87 percent of the
Nation's population. That is for wireless voice service. On the
wireless broadband, or data side, we are seeing similar growth.
Indeed, it is wireless that represents the greatest growth
and opportunity for the communications industry in a variety of
ways, and by its own account the wireless industry is very
strong. Verizon, the country's largest mobile service provider,
posted profits of $1.65 billion in the first quarter of 2009 on
wireless revenue growth of almost 30 percent. Most of the major
carriers, as Dr. Atkinson mentioned, are moving very fast to
deploy in the areas where they see a return on investment.
4G services, there is explosive movement toward and
development toward deployment of next generation broadband
wireless services. AT&T is upgrading existing networks like the
other carriers and is expanding from 350 to 370 metropolitan
areas in this next generation. Given the strength and
profitability of this industry, one wonders why the industry is
seeking preferential tax treatment, and I would like to address
the issue of whether or not they actually are seeking it in
order to deploy more wireless broadband networks.
Given that the wireless voice and data industries are both
profitable and growing at extraordinary rates in metropolitan
areas of the United States, I think we should look at what is
happening in the rural areas. Obviously we are not seeing that
kind of growth in rural areas, and I should say that America's
local governments are as concerned and troubled by this lack as
is the Subcommittee. While I commend those who believe our
Nation should find new models for expanding deployment in less
densely populated areas, it is important to understand that it
is the economics of wireless communications that is the reason
for the slow or nonexistent deployment. Deployment of
communications networks is extremely costly. Communications
carriers are private for-profit companies, and they quite
rationally allocate their investment resources to areas of the
country where they are likely to achieve the highest return on
investment, those areas that have relatively dense populations
and higher, and thereby greater, potential penetration and
higher revenues per mile of construction.
The basic reality of these economics will not be changed by
preemption of a particular tax or by removal of any single cost
of doing business. Carriers will still invest their money where
they are likely to get the greatest return on investment, and
this is the central broadband issue that we face as a Nation in
our rural areas, that that return on investment simply does not
exist in the same way in rural areas. That is a national
problem, but this is not the solution.
Finally, let me very briefly point out that this
legislation is not timely and should await the result of the
proceeding currently underway at the Federal Communications
Commission that Congresswoman Lofgren mentioned a littler bit
earlier. As directed by the Recovery Act, the FCC is currently
engaged in an extensive proceeding to develop a national
broadband plan, and as part of that plan the FCC released a
notice of inquiry that included questions abouta wide range of
various things that could be hindering broadband deployment in
the United States. And the Federal Communications Commission is
undertaking a year of extensive analysis, and this Subcommittee
should consider waiting to see the expert agency's conclusions
before proceeding with this legislation, which is really a
piecemeal attempt to deal with this issue.
I know I am out of time. I want to thank you for your
attention.
[The prepared statement of Ms. Hovis follows:]
Prepared Statement of Joanne Hovis
__________
Mr. Cohen. Thank you, Ms. Hovis.
Our fourth witness is a State representative from the
Sunshine State, Mr. Joseph Gibbons. He was elected in 2006. He
has both parts of Broward and Miami Dade Counties. The football
stadium may be in there, the baseball stadium. What do they
call it now? Pro Player?
Mr. Gibbons. Yes.
Mr. Cohen. Prior to his election to the House he was on the
Broward County Planning Council and has been a city
commissioner from the City of Hallandale Beach.
We appreciate your coming before the Committee, and please
begin your testimony.
TESTIMONY OF THE HONORABLE JOSEPH A. GIBBONS, FLORIDA HOUSE OF
REPRESENTATIVES
Mr. Gibbons. Thank you, Chairman Cohen, Ranking Member
Franks, and Members of the Subcommittee. My name is Joe
Gibbons, and I am a member of the Florida House of
Representatives representing the 105th District.
One of the committees that I serve on is the Energy and
Utilities Policy Committee. It is my commitment to my work on
the issues of that committee that brings me here today.
As wireless services continues to evolve and becomes more
about services other than voice, it is critical to recognize
that consumers in this emerging environment are not the same
individuals that could afford the expensive Internet
experience. We should not create the same digital divide on
broadband as we initially created on access to the Internet.
While Federal legislatures recognize the need to prevent
excessive and discriminatory tactics on the Internet by passing
the Internet Tax Freedom Act Amendments of 2007 and Federal and
State policymakers embrace the desire to accelerate the
deployment of broadband services, the fact remains that the
current level of State and local taxation on telecommunications
services is misguided and directly counter to economic
prosperity.
Unless the tax policies of the past are reformed to reflect
the highly dynamic nature of the communications industry today,
many of my constituents will be priced out of the ability to
have affordable access to the most advanced wireless broadband
services. The impact of the current level of taxation on
wireless consumers is significant for the high level of
seniors, African American, and Hispanic consumers, who as a
group have shown a high adoption rate and significant use of
both wireless and voice data services. My poorest constituents
are more likely to have only a cell phone as opposed to having
both a landline phone and a cell phone. Taxation should not
punish disproportionately those who can least afford it. And in
Florida that is the system in place today.
I reach out to Congress today to help steer the course to
telecommunications tax reform for all of my constituents,
especially those that use their cell phone as a lifeline. In
2000, to simplify the taxes and fees imposed upon
communications services at the State level, legislation was
passed that replaced 11 different impositions into one
consolidated communications services tax. The base was expanded
to specifically include wireless, even though several of the
old impositions were for uses of the right-of-way or other
public utility impositions. The current taxes imposed upon the
entire communications industry, including wireless, appear to
be excessive.
One of the recent trends that the industry has highlighted
has been to take the existing franchise and utility taxes that
are already applicable to landline services and extend them to
wireless. State and local officials are targeting wireless
because the number of wireline customers are dwindling and they
believe that wireless needs to fill that gap.
It is incumbent upon legislators like myself to advance the
needed reforms to the current tax structure at home so that
this critical technology, a lifeline in the eyes of my
constituents, is not taxed at rates in excess of 20 percent of
their monthly bill.
This bill does not preclude communication specific fees so
long as the funds are solely used for that stated purpose such
as funding for e-911 communications systems and universal
service. This bill prevents taxes or fees from being imposed on
wireless service that is not also imposed on general goods and
services. I believe that those taxes should be as broadly and
equitably applied as possible so that the cost of government is
borne equitably by all constituents receiving the benefit of
those services.
As a former city commissioner and a part of the Broward
League of Cities, I am intimately aware of the need for revenue
to fund critical government programs. Like any State
policymaker, I take any Federal intervention into State taxing
authority very seriously. However, I believe that H.R. 1521
carefully walks that fine line of when Federal intervention
makes sense. This bill does not preclude my ability to tax
wireless consumers or the industry in a rational way. It only
precludes my State from targeting these consumers for
additional excess taxes. I believe that precluding new
discriminatory taxes from being enacted strikes the right
balance between the different sovereign powers. These services
clearly operate within interstate commerce and as such are
within Congress' purview to address when they believe there is
a social good to do so, and again I repeat, a social good to do
so.
Working with the States to address the existing tax burden
on communication services has proven to be very challenging.
This bill is seeking simply a time-out so that the situation
doesn't get worse during the time that the industry is
continuing to work with elected officials to fix the existing
problem.
The bill would not prevent States or localities from
increasing sales taxes, property taxes, or other broad-based
taxes that apply to wireless consumers and providers in
addition to other taxable goods and services. This bill would
benefit wireless consumers by preventing them from being
singled out for new taxes.
I think the Federal, State, and local governments all have
a role in working together to ensure that we don't burden this
technology with an onerous tax structure. This legislation
seems to strike the right balance in our system of Federalism.
It is not creating an unfunded mandate by ordering States to
eliminate existing tax revenues imposed upon such services. It
is simply identifying that State and local governments should
not target wireless consumers unfairly to raise additional
revenues or their existing tax structure might come up short. I
believe precluding new discriminatory taxes from being enacted
strikes the right balance between the different sovereign
powers.
Thank you again for this opportunity here today, and I
would be happy to answer any questions that Members of the
Committee might have.
[The prepared statement of Mr. Gibbons follows:]
Prepared Statement of the Honorable Joseph A. Gibbons
Chairman Cohen, Ranking Member Franks and members of the
Subcommittee, my name is Joe Gibbons and I am a member of the Florida
House of Representatives representing the 105th District which
incorporates parts of Broward County including all or parts of
Hollywood, Hallandale Beach, Miramar, Pembroke Pines, Pembroke Park and
Westpark. My current responsibilities in the state legislature include
participation on the Transportation & Economic Development
Appropriations Committee, the Energy & Utilities Policy Committee, the
Full Appropriations Council on Education & Economic Development and the
Joint Legislative Budget Committee. Thank you for the opportunity to
testify today on H.R. 1521, the ``Cell Tax Fairness Act of 2009.''
While federal legislators recognized the need to prevent excessive
and discriminatory taxes on the Internet by passing the Internet Tax
Freedom Act Amendments Act of 2007 and federal and state policymakers
embrace the desire to accelerate the deployment of broadband services
the fact remains that the current level of state and local taxation of
telecommunications services is misguided and directly counter to
economic prosperity and continued deployment of advanced mobile
services across the country. Ultimately, unless the tax policies of the
past are reformed to reflect the highly dynamic nature of the
communications industry today, many of my constituents will be priced
out of the ability to have affordable access to the most advanced
wireless broadband services. HR. 1521 is a necessary first step to
prevent further expansion of new discriminatory taxes on wireless
services while simultaneously it is incumbent on legislators like
myself to advance the needed reforms to the current tax structure at
home so that this critical technology, a lifeline in the eyes of my
constituents, is not taxed at rates in excess of 20% of their monthly
bill.
my constituents would benefit from reform
My district is a diverse, multi-ethnic urban area which is one of
the fastest growing areas in the state of Florida. The impact of the
current level of taxation on wireless consumers is significant for the
high level of seniors, African American and Hispanic consumers who, as
a group, have shown a high adoption rate and significant use of both
wireless voice and data services:
For use of non-voice data applications on handhelds,
Hispanics and African Americans lead the way relative to
caucasian Americans. Half of African Americans and 56% of
English-speaking Latinos with cell phones, on a typical day, do
at least one of 10 non-voice data applications such as taking
pictures, accessing the internet for news, playing music, or
texting. By contrast, 38% of caucasians do these kinds of
activities on a wireless handheld device on the average day.\1\
---------------------------------------------------------------------------
\1\ Pew Internet & American Life Project, Seeding the Cloud: What
Mobile Access Means fir Usage and Online Content, March 2008,
Mobile access builds on the cell phone, a device that
is easier to use and more affordable than a computer. Adoption
patterns have therefore been very different for the device,
which is a key platform for ``on the go'' information access.
Cell phone users are more likely to be found in groups that
have generally lagged in internet adoption, such as senior
citizens, blacks, and Latinos.\2\
---------------------------------------------------------------------------
\2\ Pew Internet & American Life Project, Seeding the Cloud: What
Mobile Access Means fir Usage and Online Content, March 2008
All of the data points above are reflective of the broad
demographics that make my district the center of diversity in the state
and the impetus for the need of federal, state and local focus on the
issue of taxation of wireless consumers. Florida undertook
comprehensive measures in 2000, to ``simplify'' the taxes & fees
imposed upon communication services. At the state level, legislation
was passed that replaced 11 different impositions into one consolidated
communications services tax. The base was expanded, to specifically
include wireless, even though several of the old impositions were for
uses of the Right of Way or other public utility impositions. Although
simplification was accomplished, the excessive level of taxation
remains. The state still has one of the highest rates on communication
services in the country at over 20%. Recent efforts to reduce the rate
imposed upon all communication services have failed but no time is
better than the present to drive attention to this issue and create
momentum for reform of the existing level of taxation of these
services. What is clear though is that we shouldn't allow the situation
to get worse at the same time we are trying to fix the current system
and the situation in Florida provides a prime example of that
rationale. Once the state and local jurisdictions become dependent upon
receiving the revenues from these excess taxes it is very hard to work
to take it away, even when policymakers might agree that it is the
right policy to pursue. That is the genesis of what H.R. 1521 will help
accomplish, stopping the current tax situation from getting worse for
wireless consumers.
Furthermore, as a small business owner, I am profoundly aware of
the impact of mobile communications on the level of productivity, the
increased speed at which to react to customers needs and the cost of
tools that enhance and add to the bottom line. State and local tax
policy that discourages use and adoption by small businesses also
drives away investment in infrastructure. The most effective means to
encourage investment in the state relative to investment is to
eliminate the high level of discriminatory taxes that retard
infrastructure investment and drive up prices. The current tax policy
in Florida is counterproductive to the thousands of small entrepreneurs
that make up my district, companies that add significantly to the local
and state economy.
regressive nature of telecom taxation
The high wireless tax burden on Floridians is a major concern but
the burden on those Americans, regardless of ethnic identification,
that can least afford telecommunications services is a primary concern.
The following statistics from the Center for Disease Control's annual
survey illustrates the concern of high taxes on wireless service:
Adults living in poverty (21.6%) were more likely
than higher income adults to be living in households with only
wireless telephones.\3\
---------------------------------------------------------------------------
\3\ CDC, Wireless Substitution: Early Release of Estimates from the
National Health Interview Survey, January-June 2007
The percentage without health insurance coverage at
the time of the interview among wireless-only adults (28.8%)
was twice as high as the percentage among adults living in
landline households (14.1%).\4\
---------------------------------------------------------------------------
\4\ CDC, Wireless Substitution: Early Release of Estimates from the
National Health Interview Survey, January-June 2007
As a former City Commissioner and Vice-Chair of the Broward League
of Cities Diversity Committee, I am intimately aware of the need for
revenue to fund critical government programs but there needs to be a
fine balance in how revenues are obtained so that one service is not so
heavily burdened with taxes that it effectively discourages the use of
such services, pricing them out of reach for a segment of the
population that arguably relies upon them the most. Clearly that is the
case with cell phone taxation and as a result those that can least
afford the onerous burden are impacted the most. Ironically and to my
point, relative to taxation of their cell phone bill my wealthiest
constituents contribute at the same level as my poorest. And according
to statistics, my poorest constituents are more likely to have only a
cell phone as opposed to having both a land line phone and a cell
phone. Taxation should not punish disproportionally those who can least
afford it and in Florida that is the system in place today. I reach out
to Congress today to help steer the course to telecommunications tax
reform for all my constituents especially those that use their cell
phone as a lifeline.
policy double-speak so to speak
As wireless service continues to evolve and becomes more about
services other than voice, it is critical to recognize that consumers
in this emerging environment are not the same individuals that could
afford the expensive Internet experience through the desktop computer.
As pointed out by the Pew Internet & American Life Project ``groups
that have in the past trailed in ``traditional'' internet access are in
a better position to shape cyberspace as the internet becomes more
accessible using wireless devices.'' For broadband to become available
to the greatest number of American consumers, it's incumbent on
policymakers to make wireless services affordable through reasonable
tax policy, thus lowering a significant cost barrier.
In 2005, the percentage of African Americans with
broadband service in the home was 14%; the percentage of all
African Americans was 30 percent. In 2007, the percentage of
African Americans increased to 40%, nearly tripling in number;
the percentage of all Americans was 47%.\5\
---------------------------------------------------------------------------
\5\ Pew Internet & American Life Project, June 2007
Broadband is critical to my community and communities across the
State of Florida and the nation. The federal government has taken bold
steps in recent months to stimulate the deployment of broadband
services to all Americans. However on the flip side, policymakers are
still seeking to tax wireless services to the point were the services
are simply unaffordable. Taxation of products at rates close to the 20%
level like those imposed upon alcohol and tobacco makes sense to most
from a policy perspective because the intent is to discourage the use
of such product(s) through the high level of taxes imposed. Conversely,
taxation of wireless services, services that lawmakers want to ensure
all constituents have affordable access to, at a 20% rate, makes
absolutely no policy or economic sense. These high levels of taxation
will stifle demand for such services, which in turn will also slow
investment in critical broadband infrastructure so many policymakers
continue to seek. We need to fix the existing problem as it is
counterintuitive to many of our existing public policy goals of
expanding the reach and affordability of broadband services.
state sovereignty
Like any state policymaker, I take any federal intervention into
state taxing authority very seriously. However, I believe that H.R.
1521 carefully walks that fine line of when federal intervention makes
sense. This bill does not preclude my ability to tax wireless consumers
or the industry in a rational way. It only precludes my state from
targeting these consumers for additional excess taxes. As we have
already heard, Florida is already asking these consumers to bear more
than their fair share of the state and local tax burden and we
shouldn't allow that to get any worse. Certainly not for a service that
is critical to the overall health and productivity of our Nation's
economy.
I strongly support H.R. 1521, the ``Cell Tax Fairness Act'' and its
pro-consumer, pro-broadband intent. I welcome any questions you may
have.
__________
Mr. Cohen. Thank you, Representative Gibbons. I appreciate
it.
Our final witness is Don Stapley. Mr. Stapley is the Chair
of the Maricopa County Arizona Board of Supervisors, which is
Phoenix, which is where the University of Tennessee won the
national championship a few years ago. He has risen through the
ranks of NACo to become President, became President in Jackson
County, Kansas City, Missouri. I am a former NACo member and
attended a national conference of NACo in Jackson County myself
many years ago.
Welcome to the Committee, and we appreciate your testimony.
TESTIMONY OF THE HONORABLE DON STAPLEY, MARICOPA COUNTY BOARD
OF SUPERVISORS, ON BEHALF OF THE NATIONAL ASSOCIATION OF
COUNTIES, THE GOVERNMENT FINANCE OFFICERS ASSOCIATION, THE
UNITED STATES CONFERENCE OF MAYORS, AND THE NATIONAL LEAGUE OF
CITIES
Mr. Stapley. Chairman Cohen, thank you, and distinguished
Members of the House Subcommittee on Commercial and
Administrative Law. I will skip my introduction to save time
for the complete presentation, but I do appreciate the
opportunity to appear before you today on behalf of NACo as
well as the Government Finance Officers Committee--Association,
I am sorry, the United States Conference of Mayors, and the
National League of Cities. If there is one thing all of our
organizations have in common, it is our longstanding opposition
to efforts by Congress to preempt State and local taxing
authority. This is especially true when it comes to
telecommunications taxes. How to levy taxes fairly, how to
ensure there is no discrimination among companies that provide
different forms of the same service, and how to protect local
government revenues are all appropriate debates, but these
debates belong at the State and local level, and this is why
our associations are united in our opposition to this bill.
Local governments exercise their taxing authority to the
extent provided by State law. As a result, local taxing
authority and practices differs from State to State and
oftentimes taxing policy differs from county to county and city
to city within States. But this is good, because this means
that every local government taxing authority tailors its tax
policy by taking into account the sources of revenue available
and the needs and wants of its residents.
I was first elected to the Board of Supervisors in Maricopa
County, Arizona in 1994. More than two-thirds of the population
of Arizona lives in my county, which is also home to the State
capital of Phoenix. Three weeks ago, the board adopted a
tentative fiscal budget for years 2009 and 2010 of $2.1
billion. This represents a 5.4 percent decrease from the
current year's budget. The board adopted a strategic plan to
exercise sound financial management and build the county's
fiscal strength. To this end we cut jobs, programs, and some
services and delayed capital projects which resulted in a
savings of in excess of $122 million.
Much of the county's revenue comes from property taxes,
sales taxes, vehicle license taxes, and jail taxes. We choose
to continue minimizing the property tax burden that we impose
upon our citizens. Because of the rapid growth that has taken
place within the county, the board has lowered or maintained
the overall property tax rate for the past 15 years.
In today's difficult economic times where State aid to
local governments has decreased dramatically, local taxing
autonomy is crucial in helping to ensure that the needs of
local citizens, our mutual constituents, are met. The ability
to make taxing and other fiscal policy decisions at the local
level and without Federal intervention has enabled Maricopa
County to provide the quality services that our constituents
have come to expect.
Some argue that the proposed 5-year ban set forth in this
bill doesn't hurt State and local governments because they can
still continue to collect the taxes they currently impose. But
this misses the point.
What this legislation does is preempt State and local
taxing authority and represents a Federal intrusion into
historically protected State and local tax classifications.
Enactment of this bill would lead other industries to seek
similar special Federal protection from State and local taxes.
It is important to remember that State and local
governments, unlike the Federal Government, must balance their
budgets. In this tough financial climate, this isn't an easy
task. Hard choices like those made in my county must be made.
Essential services may be cut. Public employees may be laid
off. Infrastructure repairs and construction may be put on
hold. And yes, taxes may even have to be raised. But what is
important to emphasize is that when balancing the budget, all
options must be on the table. What this bill does is take away
one of those important options, to tax the wireless industry at
the expense of other taxpayers and businesses.
This bill fails to recognize the plain fact that not all
jurisdictions depend on identical revenue sources. Some have
income tax. Others don't. Some tax food. Others don't. As a
result some jurisdictions may necessarily have to tax wireless
services at a higher level than others. Enactment of this bill
would force those jurisdictions to rely even more heavily on
other types of taxes, thereby shifting the tax burden to those
in the community less able to tolerate it.
However, whether a particular State or local government has
imposed too high a tax burden on the wireless industry is an
issue that should be addressed at the appropriate State or
local government level. The Federal Government should not step
in and impose a uniform, nationwide taxing scheme that provides
preferential tax treatment to a single industry, the wireless
industry in this case, while preempting State and local taxing
authority.
Those who support this legislation must ask themselves
whether the preemption of State and local authority is
warranted. I urge that in this case, where legislation seeks to
protect an industry that continues to experience explosive
growth and profits at the expense of other taxpayers, it is
most definitely not. I urge you to speak out against this
measure.
Thank you for your time, Mr. Chairman, and the opportunity
to be before you today, and I am happy to answer any questions.
[The prepared statement of Mr. Stapley follows:]
Prepared Statement of the Honorable Don Stapley
__________
Mr. Cohen. Thank you, Mr. Chairman. Let me start with
questions. I am going to recognize myself for 5 minutes.
Representative Reardon, you mentioned in your remarks that
the national average wireless tax rate is now 15.2 percent and
that consumers who are at low and moderate income levels pay a
disproportionately flat rate for the same services as those of
higher incomes. I would like each of the representatives and
the county commissioner to discuss the idea of regressive taxes
such as this and its effect on people.
Representative Reardon.
Ms. Candelaria Reardon. Well, the regressive nature of the
tax is based on the economic--if you look at the income of the
average wireless customer by the Pew Hispanic study here, where
84 percent of Hispanics now have wireless service that wouldn't
potentially be able to afford the services that we were talking
about, the access to the wireless that Dr. Atkinson mentioned,
the services that they could get if they are paying 10 or $15
in taxes. Those are services that they are unable to access for
e-mail and other lifelines that they have to the community. And
there was that article in--this is a lifeline for a lot of
homeless people trying to access services for job opportunities
and housing and food stamps.
Mr. Cohen. Do you think wireless communications is kind of
a necessity?
Ms. Calendaria Reardon. I think it is becoming a necessity.
These people that are living in homeless shelters, it is their
only line of communication when checking on their housing
situation and job opportunities. It is a way for them to stay
connected to the world when they are living in a shelter, and
they miss phone calls for job opportunities because they are
using a pay phone or they don't get messages in a timely
fashion. I think it is becoming more and more a necessity in
today's society for everybody.
Mr. Cohen. Representative Gibbons, do you have some
thoughts to contribute on this subject?
Mr. Gibbons. Yes, thank you, Mr. Chair.
I think that it hinders access, actually. You know, it is
not just about voice any longer. It is about all these other
services that are part of what I consider economic development
and cost cutting. You can access all kinds of medical records
and all kinds of medical services online now. If you don't have
access to that, then you cannot take advantage of the fact that
there are savings involved in having that kind of access.
What we are trying to say is, as we deploy it--see, when
Internet services were first provided, there was a digital
divide created. There were people who could afford desktop
computers and people who couldn't afford desktop computers.
Those who could afford desktop computers had instant access,
and it opened up a whole new world to them.
Well, the same thing is going to happen with broadband now.
All I am saying is let's not leave anybody behind. Let's make
sure that everyone has equal access to the opening up of this
whole new world, because, again, we don't want two societies.
And when we don't have the opportunity to be exposed to
things--because, you know, an opportunity is not an opportunity
unless you have had the exposure to see it as such. So if I
block your exposure, I block your opportunities. And so,
through the regressive nature of this, it blocks opportunities
and it blocks exposure, and it keeps people living in certain
conditions.
Mr. Cohen. Thank you, sir.
Mr. Commissioner Stapley?
Mr. Stapley. Yes. You know, I think your question was, has
this tax become regressive in some jurisdictions. And the
answer to that is, if it has, I don't know; it certainly hasn't
in my State and in my county. We don't tax cell phones in my
county. We don't have the authority to. They may be taxed at
the State level.
But I can assure you, if it becomes a regressive tax, it is
a lot easier to get rid of those politicians at the local
level, by their local constituents, than it is to turn Congress
over because they placed a ban on these taxes through a
moratorium, a 5-year moratorium.
So, in my opinion, it is a preemption question, not a
question of regression.
Mr. Cohen. Let me ask you this. So you believe that the
Congress should not take a position and leave it up to all the
locals and the States to have maybe different taxes levels,
even though--this is, you know, different than fixed
communications, the wireless folks can be moving from State to
State, making calls from everywhere, and it is kind of a
national form of communications.
Do you not see a distinction of that in the old,
traditional, Alexander Graham Bell----
Mr. Stapley. No, I get your point, Mr. Chairman, and I
understand it. But I do believe that government works best that
is closest to the people. And, in my opinion, taxes on cell
phones should be the same.
You know, one of my colleagues next to me pulled out a new
phone the other day, and he said, ``I threw away that extensive
one, and I just got this one, and I am only paying $45 a month
for unlimited service anywhere in the United States. It is a
new program, it is great.'' It allows--I mean, it fosters
competition.
But when you take a whole industry and you treat it
differently than other industries, I think you run the risk
of----
Mr. Cohen. But isn't it different when I can hold this
phone, and it has a Memphis area code, and dial from Washington
to Phoenix and talk on Phoenix ESPN Radio with, you know,
whoever? And maybe it is different than if I was picking up a
phone that was attached to the wall and, you know, kind of pull
it around and put it to my ear and not get too far and call
Phoenix from Memphis. Isn't that a little different?
Mr. Stapley. It is different. But let me give you an
example of why this preemption issue is the issue we are
talking about and is more important than any of the other
issues. And that would be the example of the Federal Government
placing a tax on telephones, the kind that you are talking
about--Alexander Graham Bell, fixed-on-the-wall line--to fund
World War I, I believe, if I am not mistaken. That tax is still
there. It has never been taken off.
The express purpose of that tax, I think it was 11 percent,
was to fund World War I. And Congress has never gone back and
removed it.
Mr. Cohen. Does that maybe speak to why we shouldn't have a
moratorium, because it is difficult to repeal a tax once you
have passed one, and you should do it right the first time
rather than have just a hodgepodge?
Mr. Stapley. I agree with you, except I think it is much
more difficult at the Federal level than at the State and local
level.
Mr. Cohen. Thank you, sir. Thank you.
I am up. Abiding by the 5-minute rule, I now recognize the
new Ranking Member, the Ranking Member once-removed, Mr. Issa
of California.
Mr. Issa. Thank you, Mr. Chairman. And, by the way, you
have a missed call on your phone, I noticed. That is the
problem with being here on the dais.
Boy, there is so much and, as you say, Chairman, so little
time.
Mr. Cohen. It was Speaker Pelosi. She was really calling
for you.
Mr. Issa. Oh, okay. As soon as I am done here, I promise.
Well, you know, Mr. Stapley said we must ask, we who
cosponsor this bill, and so I guess I will.
Dr. Atkinson, just a couple of quick questions. First of
all, don't we inherently use less of what we tax? And can you
think of any reason we would want to limit communication,
either digital or voice? Is there any public interest in
limiting that? Is it a bad thing in some way other than, well,
driving down the road not on your earpiece?
Mr. Atkinson. Economists talk about elasticities of demand,
so, in other words, what is the relationship of demand to the
price. And there are different elasticities for different
things. The elasticity, for example, of milk is quite low, or
food. But the elasticity for cellular or wireless
communications services is quite high.
Mr. Issa. Okay, so, going through that logic, again, Mr.
Stapley was kind of, you know, sort of saying, ``Stay out of
our business. We need to do what we need to do.'' Well, let's
go through this for a second.
Wireline received access to public, State, city, county
access to roads. They got right-of-ways. Were there any
substantial right-of-ways granted by local municipalities?
Isn't it true that wireless, they pay for every single booth
and every single building that they put their cells on? They
paid very dearly for their bandwidth when they went to auction.
What is it that a city or a State gave to a wireline
carrier? What asset did it give, loan, or provide?
Mr. Atkinson. To a wireline?
Mr. Issa. To a wireless, I am sorry, to a wireless, a
wireless.
Mr. Atkinson. Wireless. I am not aware of any on wireless.
Mr. Issa. So, unlike wireline, they gave nothing. Unlike
wireline, instead of being given, they had to pay. So where is
the interest by a city or a county or a State in some harm or
some offset for which they have a special right to tax greater
than the ordinary tax?
Which, if I understand my Constitution, we specifically
have a prohibition on targeting taxes. You know, it is designed
to keep from targeting one rich landowner out of business, but,
in fact, you target an industry, it is somewhat the same.
Is there anything that is so evil in wireless communication
as to receive a special burden?
Mr. Atkinson. No. It is to the exact opposite. I mean, it
would be one thing if States or localities want to impose taxes
that hurt their own economy or that hurt their own poor or low-
income citizens. The Federal Government doesn't have a job to
protect them from bad decisions.
The problem with this case, though, is that those decisions
impact the rest of us. And they impact the rest of us by
devaluing the value of the overall network. And that is what
the----
Mr. Issa. And going to that, isn't the commerce clause
probably the most cited reason for the Federal Government
feeling that, in fact, the common good of all the citizens of
the various States and the District are required to be
protected by we in Washington? And if, in fact, you were to
have a local municipality that made it burdensome to do
business there, that it could degrade the ability of the rest
of the country to do business with, let's say, Arizona?
Mr. Atkinson. Absolutely correct.
Mr. Issa. So we do have a public interest. We do, in fact,
understand that what we tax more we consume less of. We do
understand there is nothing inherently wrong in that.
Additionally, are there any offsets in the existing tax?
For example, E911, although it is a wonderful service, and it
is paid for out of the taxes on the system, in fact it is not a
problem created by the system, but, in fact, an excess benefit
created. I just want to make sure we understood that.
I guess, Mr. Stapley, I have been referencing you because
you were so vehemently opposed to our preemption. I will ask
you one question and then let you answer sort of all of them.
If, in fact, the good people of Arizona heard you today, or
of Phoenix, and said, ``Okay, fine, if that is the way he feels
about it, we will all simply go get phones in another area
code, and we are simply not going to pay your tax if we feel
that it is one penny higher than the lowest tax in the
Nation,'' do you believe you would have any authority to do
anything over your constituents choosing to pick a lower tax
area under national law?
And, if so, what we are proposing here, isn't it, in fact,
for your own good that we want to essentially say, since they
have the ability to go shop elsewhere, we are simply keeping
you from taking advantage of your constituents simply because
they want an area code that is convenient?
Mr. Stapley. I think the best answer I can give you is that
those debates should be not here in Washington, D.C. Those
debates need to take place in the States and in the counties
and in the cities.
Mr. Issa. Well, I appreciate that, but I am a San Diegan,
so I am sort of a suburb of Arizona all summer. And the
``zoneys'' all appreciate that.
Mr. Stapley. Yes, right, exactly.
Mr. Issa. We take advantage of you in San Diego in a huge
way. You can't vote. And what do we tax at a disproportionate
rate? Hotel/motel, all the----
Mr. Stapley. You are telling me.
Mr. Issa. Exactly. We have huge taxes. And do you know why
we do that in San Diego? Because there is no constituency
against it.
Mr. Stapley. Correct.
Mr. Issa. Isn't, in a sense, when you say, ``Hold us
accountable, we are the ones closest, we are going to have the
election,'' isn't it true that basically there is nobody that
has ever been voted out of office for putting a tax on
something that is pretty invisible to the consumer, such as a
hotel or, in this case, even local ups and adds to a telephone
bill?
And, by the way, you have my personal apology that we
haven't yet paid for World War I and that we are still taxing
it. Because I do think it is inherently wrong to be continuing
to have these artificial taxes.
Mr. Stapley. Well, I understand your point and do not
disagree, but I do believe that the debates need to take place
locally. And if there is a national problem, we can work
together to solve that problem.
But I don't think, by preempting State and local
governments from assessing these taxes--because, again, for the
very reason that I said in my testimony, every county, every
city has different revenues, has different needs, and
constituencies have different----
Mr. Issa. Right. But just one question: Do you understand--
because you didn't seem to in your statement--that it is only
discriminatory taxation that we are objecting to? If you want
to tax, if you want to have a 17 percent sales tax on
everything, this bill would not preempt you in any way, shape,
or form from including wireless and wireline or anything else.
Mr. Stapley. I do understand that, but I also understand
that that is the basic premise upon which most politicians are
unelected. So that is not the issue.
Mr. Issa. So what you are saying is, if you had a 17
percent sales tax, your people would be unelected, but if you
have a tax on this particular subset, it may not show so much?
Mr. Stapley. No. I think the point is, I don't think that
the tax on this subset should be done at the Federal level or
should be prohibited at the Federal level. It needs to be dealt
with at the local level.
Mr. Issa. But you know we prohibit you from having a poll
tax. Do you think that is reasonable?
Mr. Stapley. I do.
Mr. Issa. Okay. So you do look at some arbitrary or some
punitive or some discriminatory taxes that we prohibited as
reasonable; you just don't like this particular preemption?
Mr. Stapley. That is correct.
Mr. Issa. Thank you.
Thank, Mr. Chairman.
Mr. Cohen. Thank you, sir.
I am going to, in the policy of Chairman Conyers, going to
recognize Mr. Watt next and then Mr. Delahunt and then Mr.
Sherman.
Mr. Watt, you are recognized, having been here for the
longest period of time today.
All right then, I would yield and recognize the Vice
Chairman, Mr. Delahunt.
Mr. Delahunt. Well, thank you, Mr. Chairman.
And I am also the vice chair of the States' Rights Caucus.
The gentleman to my right, Mr. Watt, has been chairing that
particular caucus since I arrived here in Congress some 13
years ago. He is, I am sure, well-known throughout the country
for his advocacy for States' rights. And it is good to see that
there is a Member in this branch that still believes in the
viability of the 10th amendment.
But I have been asked to submit for the record a statement
of the Federation of Tax Administrators on cell phone taxation.
And I would like to submit it for the record, Mr. Chairman.
Mr. Cohen. Without objection, so done.
[The information referred to follows:]
Prepared Statement of the Federation of Tax Administrators, submitted
by the Honorable William D. Delahunt, a Representative in Congress from
the State of Massachusetts
__________
Mr. Delahunt. You know, this is a debate that plays itself
out in a variety of different ways, you know, preferential
treatment, the interstate commerce clause. I have been very
much involved in the issue of fairness as applied to the
collection of the sales tax, you know, from out-of-State
vendors.
But let me just put a--if we continue here in Congress to
limit the sources of revenue--and I am not even sure I am on
this particular bill--but where are States and local
governments and other subsets of States, where are you going to
get your revenue?
Mr. Stapley, do you have any ideas? Are you going to have
a--are we are going to have to increase the property tax? Are
we going to have to--which is clearly a regressive tax. It is a
regressive tax. Or are we going to have to increase the sales
tax rates and maybe increase it on such items as food?
I mean, I think there are legitimate arguments on both
sides of this issue.
But let's presume that in Arizona, or in California, for
that matter, local governments are doing a good job, they are
making some real tough decisions, and that the budgets that
they formulate we could all agree on. Where are they going to
get their revenue?
In Massachusetts, because of the difficulty in collecting
State sales tax from out-of-State vendors, we have a shortfall
of some $400 million to $500 million. That is a pretty good
plug. In California, Mr. Issa, I understand it amounts to
billions of dollars in terms of shortfall.
Mr. Issa. $42 billion but rising.
Mr. Delahunt. No, no, I am talking about just the shortfall
because of the inability of the collection of sales tax.
Mr. Issa. Oh, yes.
Mr. Delahunt. You know, we can't continue to avoid
discussion of this issue, which is: How do State and local
governments, which deliver the real necessary services that
people demand, how are we going to fund them? Any ideas? Be
creative.
Mr. Gibbons?
Mr. Gibbons. Thank you.
I can tell you what they are doing. They are increasing
fees--water fees, fire fees, sewage fees. Because in Florida we
limited the local government's ability to raise property taxes
to a certain percentage of CPI. So what they did was, because
we had falling property values, they started increasing fees.
Mr. Delahunt. OK, we can increase fees.
Mr. Gibbons. That is what is happening.
Mr. Delahunt. Okay.
Ms. Hovis?
Ms. Hovis. Congressman, I am not a tax expert. I speak to
the broadband issues. I don't know----
Mr. Delahunt. Well, tell me, where would you get the money
to fund teachers?
Ms. Hovis. I would say only that the--I can't imagine how
localities could exist if they don't have control over taxing
decisions at the local level.
And while I respect the tax issues here, I deeply respect
those concerns, I think that if this piece of legislation is
about impacting broadband investment, it will have only effects
at the far margins. It will not solve the problem it purports
to solve, even if it does have some kind of a basis in tax
policy. There is not a broadband policy here.
Mr. Delahunt. Thank you.
Ms. Reardon, how do we fund the cops?
Ms. Candelaria Reardon. Well, I think that this industry
last year paid $21 billion in State, local, and Federal income
taxes and fees. In Indiana alone, $326 million was paid by
these taxes and fees.
At some point we have to look at----
Mr. Delahunt. Well, what new revenue sources at the local
level would you suggest?
Ms. Candelaria Reardon. Well, I think that, you know--first
of all, I don't think that taxing the citizens any further,
without looking at efficiencies in government----
Mr. Delahunt. No, I am not giving you the hypothesis that
we have done all the efficiency, that the local people are
doing a good job, we are at a barebones budget, and we don't
have enough money. How do you fund it?
Ms. Candelaria Reardon. I can't speak to that----
Mr. Delahunt. OK, thank you.
Ms. Candelaria Reardon [continuing]. That land. I mean, we
don't live there, in Indiana. We have lots of----
Mr. Delahunt. I understand----
Ms. Candelaria Reardon [continuing]. Reforms, and I think--
--
Mr. Delahunt [continuing]. But I am using a national
argument here.
Ms. Candelaria Reardon. Well, then you look at fees, you
look at property taxes. I think those are the things that----
Mr. Delahunt. Property taxes, fees. Okay, thank you.
Dr. Atkinson?
Mr. Atkinson. I would not tax a critical engine of economic
growth and innovation. For example, I wouldn't----
Mr. Delahunt. Okay. Where would you tax?
Mr. Atkinson. What I would----
Mr. Delahunt. I am not asking where you wouldn't. Where
would you tax?
Mr. Atkinson. Right, I understand that, but I needed to say
that first. What I would tax, I would tax things that basically
have less distorted impact. And most of the studies show----
Mr. Delahunt. You know, ``distorted'' is a great word.
Where would you tax?
Mr. Atkinson. I am going to say it in just about 1 second.
Mr. Delahunt. He is going to rule me out in another second.
Mr. Atkinson. As I said, I would therefore tax property,
income, and sales. Income first, property----
Mr. Delahunt. Thank you. Property, income, and sales.
Mr. Stapley, you are my last shot.
Mr. Stapley. Well, first of all, let me just say that, as
representing the associations--the National Association of
Counties, the League of Cities, the Conference of Mayors--we
are not closed to telecom tax reform. We are interested in
engaging and have engaged in that debate. We just are opposed
to this what I consider to be a piecemeal approach.
To answer your question specifically----
Mr. Delahunt. Answer my question. Where would you tax?
Let's say this bill goes and we will never be able to tax
wireless ever again. What are you going to do?
Mr. Stapley. We are going to continue to tax at the same
three-legged stool that we have in the past, that we just
talked about. And we are going to have to learn to live within
our means. That is the answer to your question.
Mr. Delahunt. I am even giving you the premise you are
going to live in your means. You have the barebones budget out
in Maricopa County. I mean, you know, you are paying teachers
$7,000 a year, okay, and you are really crunching them down.
How are you going to pay for it?
I yield back. I thank the indulgence of the Chair.
Mr. Cohen. Thank you.
Mr. Watt, distinguished Member, head of the States' Rights
Caucus, and Mr. Congeniality.
Mr. Watt. Thank you, Mr. Chairman.
Let me first applaud the testimony of Ms. Hovis, who didn't
deal with the tax issue here but dealt with whether this is
really going to have any impact on the provision of phone or
broadband service. I definitely agree with you.
And we need to figure out a way to extend broadband
deployment into rural areas. Taxes is not driving that one way
or another. In my urban community, I don't have any problem at
all finding a network to do this. Whether they tax it or don't
tax it is not driving that. But when I retreat on the weekends
up the mountains of North Carolina, no service of any kind
there. And whether this gets taxed or doesn't get taxed is not
going to solve that problem one way or another.
I am not an advocate of discriminatory taxes, even though I
am cast as the States' rights advocate here. I have the same
questions that Mr. Delahunt has asked about that. But I don't
know that I think that is the issue either.
My question is, how you define ``discriminatory'' here. And
I just need a little more information, because I think the
definition of ``discriminatory'' that is in this bill is way,
way too broad.
The taxation of mobile service property is one thing. I
think we should not be discriminating between fixed people and
mobile people. But the service, I am not sure how the taxation
is being done. Maybe Ms. Candelaria Reardon and Mr. Stapley can
help me with this.
Is there a discrimination now between a fixed land line tax
on service, phone service, broadband service, and mobile
service? Because that is really the comparison that I think we
ought to be trying to make here if we are trying to eliminate
discriminatory taxation. It is not between all other people who
are not in the business of providing telecommunications
services.
Is that going on now?
Ms. Candelaria Reardon. I believe it varies from State to
State. In Indiana, for example, we pay the local, State, and
Federal taxes, fees, surcharges. However, on top of that, we
also pay a utility receipts tax.
Mr. Watt. On land lines and mobile lines?
Ms. Candelaria Reardon. Yes.
Mr. Watt. Or on just mobile lines?
Ms. Candelaria Reardon. On both.
Mr. Watt. Okay. So how is that discriminatory?
Ms. Candelaria Reardon. Well, because there----
Mr. Watt. Yet it would be under this bill. If it gets
charged to land line carriers and it gets charged to mobile
carriers, how is that discriminatory? That is what I am trying
to figure out. Yet it would be under this bill.
Ms. Candelaria Reardon. Right. And we touched on that, I
think Congressman Issa touched on that earlier, about the
right-of-way fees that are charged for cellular use as opposed
to land lines.
Mr. Watt. I am not looking at the source of what the State
or the local community has provided historically. All of that
stuff has kind of gone out. The land lines are owned by private
industry now. They are not owned by the State anymore. They are
not run by the State anymore.
So if we are going to make a comparison, it seems to me we
ought to be making a comparison between how we treat land-line
phone and broadband service versus how we treat mobile phone
and broadband service. And if those two things are being taxed
the same way, that is how--I mean, that is my definition of
``discriminatory.''
I am perhaps asking the wrong person this. Maybe I should
be asking Ms. Lofgren this when we get to a markup; it is her
bill. But it seems to me that the definition of
``discriminatory'' in this bill is way broader than I am
comfortable with.
Ms. Lofgren. Would the gentleman yield?
Mr. Watt. Let me go to Mr. Stapley, and then maybe I can
get Ms. Lofgren to explain this.
Mr. Stapley. Yes, I would just offer a brief opinion. And
that is, irrespective of the bill, it could be considered
discriminatory either way, whether the bill is in place or not.
I mean, there is a difference. A good example----
Mr. Watt. My question is, are local communities taxing land
telecommunication in a different way than they are taxing
mobile telecommunication? And that seems to me to be the
underlying question that I am asking.
Ms. Lofgren. If I may?
Mr. Watt. Yes, I will yield to the gentlewoman. My time has
long expired.
Ms. Lofgren. The answer to that is ``yes'' because the
Congress has passed an Internet tax moratorium. And we did so
because we want to nurture the development of the Internet.
Mr. Watt. I wasn't all that happy about that either.
Ms. Lofgren. But the answer to the question is, if you have
a DSL line, you can engage in discriminatory taxes on the DSL
land because that is broadband that we want to nurture. You can
do so on your 3G line, which is another reason why the bill was
introduced.
I thank the gentleman for yielding.
Mr. Watt. Okay. Well, maybe I just don't have enough
education and understanding about how taxes are being imposed.
But it seems to me that the definition of discriminatory in
this bill goes well beyond differences in treatment of
telecommunications companies and says you can't discriminate
between mobile telecommunication companies and any company. And
that I am troubled by.
But I will get, when we get closer to the markup--maybe we
should have a hearing about that rather than whether it is a
good idea to discriminate. It is never a good idea to
discriminate, but it is always difficult to define
``discrimination'' and what is really discriminatory.
So I am through, but Mr. Gibbons wants to respond to my
question.
Mr. Gibbons. Thank you for the question.
To me, it is discriminatory when, in Florida, we tax all
other goods and services at 6 percent but we tax these services
at 20 percent.
Mr. Watt. No, it is discriminatory if you tax land
services, telecommunications services one way and mobile
telecommunications services another way. It is discriminatory
if you tax their property, the property of a non-
telecommunications company one way and the property of a mobile
company another way. That is discriminatory.
But if you, the service that is being provided here, the
telecommunications service, if you are treating land providers
and mobile providers the same way, that doesn't seem to me to
be discriminatory.
And that is what I am asking the question about. And I
don't know the answer to that. Maybe----
Mr. Atkinson. Could I respond to that quickly?
Mr. Watt. If you know the answer to that question.
Mr. Atkinson. I was going to answer that question.
Mr. Watt. Okay. All right.
Mr. Atkinson. I think there are two kinds of discrimination
that we are talking about. There is inter-industry and intra-
industry.
And what you are talking about is a discrimination within
voice. And, clearly, the ideal would be no discrimination, but
we do have difference rates right now. For example, as
Congresswoman Lofgren alluded to, if I get on a user voice
service, VOIP, voice-over Internet, on broadband, the broadband
tax moratorium makes that a little bit--makes it less taxed
than wireless. So that is discrimination.
The point, I think, that is more important, though, is that
it is not so much intra-industry, it is inter-industry, the
fact that this overall set of services----
Mr. Watt. See, I don't even want to go there. I mean, that
is not the discrimination that I think we ought to be dealing
with in this bill. That is just my own opinion. Maybe I am just
out to lunch.
I yield back, Mr. Chairman. I have taken much more time.
Mr. Cohen. Thank you for yielding back the remainder of
your time.
Mr. Watt. I did not yield back any time. I just yielded
back.
Mr. Cohen. I will yield to the gentlelady of California,
Mr. Sherman having joined the competition for congeniality.
Ms. Lofgren. Thank you very much.
And thank you, Mr. Sherman, for allowing me to ask my brief
questions. At this time, I have to Chair a Committee hearing
over in the Capitol in 7 minutes, so I will be brief.
Dr. Atkinson, there has been some suggestion the taxation
has no real impact, meaningful impact, on how this technology
will be deployed. And I am wondering if you have a comment on
that, number one.
And, number two, you are a technology observer. And I am
wondering if you have a view--you know, right now we have 3G.
We are about to get a 4G rollout. In the next several years,
unimpeded, what do you foresee will be developed in the
wireless arena that is really at stake here, the related
questions?
Mr. Atkinson. Well, the first question is on impact. And I
think it is important to understand that the impact here is
what economists would call ``at the margin.'' So if you have a
tax or don't have a tax, it is not going to affect wireless
deployment in the middle of nowhere, doesn't matter what the
tax is. And it won't affect wireless deployment in Silicon
Valley.
Where it will affect deployment, though, are places at the
margin, where the costs are slightly higher than what you can
make a return on. And that is clearly what Austin Goolsbee
showed in his study. And the same thing happens on adoption.
And I think it is important to recognize, on adoption, not
everybody has a cell phone who uses wireless service as a
traditional user. For example, we recently bought a cell phone
for my father-in-law, who passed away recently, but before he
passed away he had Alzheimer's. And he would walk around, and
he didn't know where he was sometimes. And his wife, my mother-
in-law, did not know how to get hold of him. And we got him a
cell phone from Verizon and we had, you know, with everybody's
permission, a tracking thing you can put on it so that she
could go on the Internet and find out exactly where he was. And
this was very, very useful to us and it allowed him to sort of
have mobility and be out in the community longer than would
have otherwise.
Well, that was a discretionary purchase. Now, we were fine
with making it, but there are lots of other people where having
an 18 percent tax on that might keep them from doing it. So I
do think that there is clearly economic evidence that this is
discretionary.
In terms of where we are going, I think we are really only
at, if you will, Internet, sort of, wireless 1.0. Wireless 2.0
is going to be an amazing series of things where we will be
able to do medical data transfer, we will have 4G wireless, be
able to have broadband to the home, a fourth pipe, a third
pipe. There will be a whole array of new innovative services
that the iPhone is really just only touching on.
So I think that is the context we have to think about that.
Do we really want, as a Nation, to be taxing this whole array
of new services? I would argue it makes sense to have a 5-year
moratorium on doing that.
Ms. Lofgren. Now, can you give us an international
perspective on wireless development? Where is the United States
relative to other countries? And where might we be relative to
other countries in, say, 5 or 10 or 15 years from now?
Mr. Atkinson. Well, in some areas we are ahead. We seem to
be ahead, for example, on mobile services, wireless voice
services. But in other areas we are behind.
So, for example, the ability to use your cell phone--I was
just reading today in the new iPhone announcement, you can use
your cell phone to go get into your Zipcar. So if you get a
Zipcar, you download the code, just wave your cell phone and it
opens the door of the Zipcar--kind of a cool device. But we are
so far behind on those.
You take a country like Japan or Korea where you can use
your cell phone to download movie tickets, walk into the movie
theater, wave your cell phone, get into the theater. In Japan,
the ability to have traffic information on your cell phone, you
can look on your cell phone and know in real time what the road
conditions are like.
Those are the areas that we are farther behind on. And I
think, unless we try to innovate more, we are going to continue
to be behind there.
Ms. Lofgren. I would just note, before I yield back--I
won't take additional time. Thank you, again, Mr. Chairman, for
this hearing.
I do think, although not everyone agreed, that when we, the
House and Senate, acted and the President signed the bill to do
a moratorium on Internet access, it was really a mistake: This
should have been included, and it was not.
And I think, you know, that was a pretty broad consensus.
Not every person agreed. But the country is now in a position
where we are saying we are going to nurture Internet
development. And, without including wireless, we are going to
fall short.
And, in fact, I think that wireless is going to leapfrog
some of what we have already done, and that is just a personal
opinion, not only in the United States but certainly in the
developing world. If you take a look at parts of Africa, I
mean, they are just going to leapfrog with the wireless
technology that is being developed, provided that we take the
right steps to nurture innovation both through our research
efforts as well as our tax policy.
So I thank you, all of the witnesses. And I apologize for
running off to Chair my other Committee.
Thank you very much, Mr. Chair.
Mr. Cohen. You are welcome, and thank you.
And now Mr. Sherman is recognized for 5 minutes.
Mr. Sherman. Thank you, Mr. Chairman.
I should explain my uncharacteristic politeness in letting
Ms. Lofgren go first. It is actually a clever tactic so that
she would be outside the room before she heard me in any way
criticize her bill. I don't want anybody to think that
congeniality is something they should expect from me except in
extraordinary circumstances, no, not at all.
Mr. Chairman, I would hope that we in the Federal
Government would make sure that our Federal tax laws were
entirely devoid of unfairnesses and unreasonable distinctions
before we then go tell the States how to make sure that their
laws are fair.
In my State, we tax scotch more than we tax beer. I have
always thought that was unfair. And I don't know why we aren't
dealing with that issue or hundreds of other issues where we
could say that we have some unfairness at the State level.
The argument is that this is somehow preventing the
deployment of a national network. Well, since 2000,
subscribership in wireless has grown by 158 percent; revenue
has grown 124 percent. And if I have to ask people in my State,
``What are the big problems?'' insufficient access to wireless
communication is not one of them. The fact that summer school
has been cancelled in Los Angeles for insufficient revenue,
that is likely to be on the list.
Now, Mr. Atkinson urges that we tax property, income, or
sales. But in my State we can't do that without a two-thirds
vote, and we are not going to get one.
Ms. Reardon, are you an advocate for taxing property,
income, and sales to replace the missing revenue?
Ms. Candelaria Reardon. Well, this bill does not actually
impact revenue. The revenue that is already there will remain
there. It is a moratorium on increasing sales taxes. It
wouldn't inhibit the revenue already collected.
Mr. Sherman. Well, my State has a $42 billion deficit. We
are looking for new sources of revenue. Clearly, we are going
to need some more revenue. Would you say we should get it from
property, income, or sales taxes?
Ms. Candelaria Reardon. Yes.
Mr. Sherman. Okay. Have you advocated increases in any of
those taxes in your own State?
Ms. Candelaria Reardon. We have a surplus in our State,
currently.
Mr. Sherman. Congratulations. Could you share some of that?
Yes, exactly, in the spirit of foreign aid. California is
sometimes regarded as foreign.
I would hope, Mr. Chairman, that since we are having
hearings today that would undercut State revenue, that we would
also have hearings on a bill, maybe Delahunt's bill, to reverse
the Quill case and allow the proper collection of sales taxes
that are already a matter of law. And, I mean, if we are able
to pass such a bill, I think States could afford to see the
passage of Ms. Lofgren's bill.
I yield to the gentleman from Massachusetts.
Mr. Delahunt. I thank the gentleman.
And let me just say, because sales tax revenue, clearly,
for most States is a significant part of their revenue source--
and I, in the past, have suggested that the stakeholders come
together. I would advocate, to nurture various industries and
moratoriums, et cetera, that potential support if, in fact, we
can resolve exactly the problem as described by my colleague
from California.
But I can't support anything that will continue to erode
the revenue base of State and local sources. I am finished
doing that. Because until we address the major problem
confronting States in terms of revenue sources, which is the
sales tax, then everything else that comes in front of this
Committee, I say, has to be deferred.
And I thank the gentleman.
Mr. Sherman. Just to explain the issue for those in the
room that haven't followed it, a large number of States impose
a sales tax. Every State that imposes a sales tax also imposes
a use tax, so that if you are able to buy something through a
catalog or a phone or Internet and escape the sales tax because
it is shipped to you, then you are supposed to pay taxes on
that as a use tax.
The problem is that retailers outside your jurisdiction
fail to collect the use tax or report the use tax liability.
And so, as a practical matter, billions and billions of dollars
of sales/use tax revenue is never collected.
If we were able--and perhaps some of the people at this
table could become advocates for a bill--to require retailers
around the country to report when they ship something into
Massachusetts or California or, better yet, to collect the
sales and use tax and remit it to State tax authorities, if you
want to put Zoe Lofgren's bill on that bill, I will vote for
final passage, and you will have at least two votes that you
might otherwise not get.
With that, I yield back.
Mr. Cohen. I thank the gentleman from California.
And Mr. Jordan does not seek to ask any questions. And,
with that, I believe we have concluded our questions.
I want to thank each of the witnesses for their testimony
and appearing before us.
And I hope that if there are questions submitted to you,
which there may be, by Members, that you will respond to them.
You will have 5 legislative days to respond to those questions
which might be submitted by Members of the Committee.
Without objection, the record will remain open for those 5
days for the submission of any additional materials from
Members.
And I thank everyone for their time and patience.
This hearing of the Subcommittee on Commercial and
Administrative Law is adjourned.
[Whereupon, at 1:20 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Post-Hearing Questions from Robert D. Atkinson, Ph.D.,
President, Information Technology and Innovation Foundation
Response to Post-Hearing Questions from the Honorable Mara Candelaria
Reardon, Indiana House of Representatives
Response to Post-Hearing Questions from Joanne Hovis, Columbia
Telecommunications Corporation, on behalf of the National Association
of Telecommunications Officers and Advisors, the National Association
of Counties, the Government Finance Officers Association, the United
States Conference of Mayors, and the Natiional League of Cities
Response to Post-Hearing Questions from the Honorable Joseph A.
Gibbons, Florida House of Representatives
Response to Post-Hearing Questions from The Honorable Don Stapley,
Maricopa County Board of Supervisors