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Cell Phones, Taxes and Abuse of Taxpayers

Let’s go from the bad to the worse. First, let’s look at a policy paper about the cell phone  taxes imposed by state and local governments written by Joe Henchman and Scott Drenkard of the Tax Foundation published a month ago (Fiscal Fact No. 355, January 30, 2013). They begin the paper saying:

“The number of U.S. cell phone subscribers has grown significantly in recent years from 48.7 million in 1997 to 321.7 million in 2012. That period has also seen a fall in landline telephones, with 34 percent of households now only using wireless phones. This trend toward cell phones has not gone unnoticed by state and local governments, many of which have targeted wireless services for higher taxes.

“U.S. wireless consumers pay an average 17.18 percent in taxes and fees on their cell phone bill, including 11.36 percent in state and local charges, according to a newly released study that identifies and calculates wireless taxes and fees. In Nebraska, the combined federal-state-local average rate is 24.49 percent, and in six other states (Washington, New York, Florida, Illinois, Rhode Island, and Missouri) it exceeds 20 percent. Twenty-six states have average state-local wireless taxes and fees in excess of 10 percent, and taking into account the infamous federal telephone excise tax (dating to the Spanish-American War and partly repealed in 2006), cell phone subscribers in seven states pay more than 20 percent in taxes.”

A complete list of each state’s state and local tax rates is in Table 1 of the report.

Virginia ranks 44th with a state rate of 6.60% and a local government rate of 12.42%. When you get your next monthly phone bill, take a look at the taxes, and remember that it could be worse if you lived in Nebraska, Washington or New York. As Henchman and Drenkard conclude:

“Making cell phone calls and using wireless services for additional purposes may be getting easier, but paying cell phone taxes is not.”

Now to cell phones and the abuse of taxpayers. In the Wall Street Journal on February 11. 2013, Spencer Ante wrote that “millions improperly claimed U.S. phone subsidies. He began this way:

“U.S. government spent about $2.2 billion last year to provide phones to low-income Americans, but a Wall Street Journal review of the program shows that a large number of those who received the phones haven't proved they are eligible to receive them.

“The Lifeline program—begun in 1984 to ensure that poor people aren't cut off from jobs, families and emergency services—is funded by charges that appear on the monthly bills of every landline and wireless-phone customer. Payouts under the program have shot up from $819 million in 2008, as more wireless carriers have persuaded regulators to let them offer the service.

“Suspecting that many of the new subscribers were ineligible, the Federal Communications Commission tightened the rules last year and required carriers to verify that existing subscribers were eligible. The agency estimated 15% of users would be weeded out, but far more were dropped.

“A review of five top recipients of Lifeline support conducted by the FCC for the Journal showed that 41% of their more than six million subscribers either couldn't demonstrate their eligibility or didn't respond to requests for certification.”

John Hayward, writing at Human Events on February 12, adds:

“Remember the “Obamaphone Lady?” Sure you do! She was, in many ways, the exemplar of the 2012 presidential campaign: an angry welfare dependent outraged that anyone would dare to run against President Obama and threaten her benefits. The benefit she most prominently mentioned during her tirade at a Romney campaign event was her “Obama phone,” a free government-provided cell phone.

“As it turns out, she was wrong about Barack Obama as the source of this particular Big Government lollipop, but taxpaying Americans were astounded to discover that the government does indeed distribute free cell phones to Food Stamp Nation, under the aegis of a program originally instituted in the 1980s to help the poor obtain land-line telephones. Although the benefit expanded to include cell phones (even smart phones!) under the Bush Administration, popular urban legends attribute the phones to Santa Obama. These legends seem plausible to readers because the size of the “Lifeline” program, like every other aspect of Food Stamp Nation, has exploded under President Obama. It cost $819 million in 2008, but weighed in at roughly $2.2 billion last year. If you’re a taxpayer with a cell phone, you’re kicking in about $2.50 per month on your cell-phone bill to fund the program.

“And, like every other government handout programs, Lifeline is absolutely riddled with fraud. No sooner had the Obamaphone Lady burst onto the scene than stories of scam artists making off with two, three, or even more “free cell phones” began circulating."

Hayward concludes his Human Events article by saying:

"The idea that any provider would be allowed to keep their results confidential, or that any Obamaphone subscriber would be allowed to take a pass on responding to the eligibility survey, is absolutely absurd.  I can’t think of a more profound gesture of contempt toward the taxpayers who fund this garbage.  The notion that hard-working Americans would be asked to surrender another dime in higher taxes to fund programs sick with fraud and abuse, programs that have brought us the lunacy of welfare dependents chatting away on “free” cell phones, is offensive."

The New York Post provides a little bit of balance to the story, however. The lede of their February 17 article is:

"First they were Reaganphones. Then they were Bubbaphones. Next they were Dubyaphones. Last year they became infamous as Obamaphones.

"Hordes of critics attacked the president in 2012 for giving away free cellphones to the poor, with the tab covered by fees on every cell and landline user in the country.

"But last week the truth came out: President Obama is actually helping dial down the federal program that’s created a $2.2 billion lesson in what happens when Washington’s good intentions go bad.

"The feds created the Lifeline program in 1984 to provide landlines (and thus a connection of last resort to emergency services, job prospects and family members) in even the poorest homes."

Isn't it grand to live in the welfare state, though?


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