June 21, 2000

June 21, 2000 | Commentary on Regulation

The Hidden Phone Bill Tax

You know how upset you get when the phone company bills you incorrectly? That's nothing compared with how angry the Federal Communications Commission must be at AT&T for listing on its new itemized bill the "Universal Connectivity Charge," a hidden tax the FCC forces phone companies to charge their customers every month.

There's no explanation on the bill, but AT&T gives a 1-800 number to learn the story behind this seemingly innocuous charge. Since 1997 long-distance carriers have been forced to pay into a federal program called the "Universal Service Fund" that subsidizes phone service to low-income and rural customers. The Fund also subsidizes discounted Internet access to schools and libraries around the country.

You may be thinking: "What's wrong with helping people get phone service and Internet access?" Let me ask the question another way: "Why am I being slapped with a hidden tax by an unelected bureaucracy?"

The "connectivity" charge has been dubbed the "E-rate" (short for "education rate"), and the FCC has been pressuring long-distance carriers from the start not to list it on their bills. Small wonder: According to the National Taxpayers Union, the $2.25 billion now being collected annually is expected to grow to more than $10 billion by 2003. In other words, the E-rate is trotting the well-worn path taken by nearly every government subsidy: never shrink, always grow, and never, ever go out of business.

And like certain plants, this tax flowers best when kept out of direct sunlight. The phone companies have tried repeatedly to inform their customers about the tax, but the FCC has opposed every effort to expose the budding entitlement program. In a nice Orwellian touch, the commission even had the nerve to label its fight against line-item phone bills its "Truth in Billing" campaign.

But why hide this relatively modest charge if, in the words of FCC Chairman William E. Kennard, we're funding "a critical investment … for our schools, our children, and our country"? After all, the White House and the FCC have a great rhetorical club to swing at their critics: How can you be against spending a few pennies a day to help poor kids get connected to the Internet?

Two reasons: For one, new research has shown that computer use in school doesn't automatically lead to higher test scores. But even if it did, it's not really the amount of the tax that matters - it's the principle. And the principle at stake here is a rather serious one, since the U.S. Constitution clearly stipulates that only Congress has the power to tax American citizens. True, the E-rate grew out of the Telecommunications Act of 1996, which Congress passed with the intention of helping to expand Internet access, but that didn't give the FCC the power to usurp a basic constitutional duty.

The time to settle these questions - why the E-rate is hidden and if it's constitutional - is now, before the tax climbs even higher. And if you doubt that it can, consider the fact that Congress is just getting around to repealing a 3 percent excise tax established in 1898 to fund the Spanish-American War.

The rallying cry of that war was, "Remember the Maine!" But given the relentless drive to sneak hidden taxes into our phone bills, perhaps it's time to remember the Boston Tea Party.

Edwin Feulner is president of The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

Related Issues: Regulation

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