Presidential veto puts
repeal of telephone tax on hold
By Kay Bell • Bankrate.com

Congress thought its battle to do away with a century-old telephone tax was over in mid-October. That's when legislation phasing out the fee went to the White House for a presidential signature.

But the effort to eliminate the 3 percent excise tax became an unexpected casualty of the escalating budget war on Capitol Hill.

The phone tax provision was part of the larger Treasury Department appropriations bill. The president said he had no problem with the bill itself and had even voiced his approval of the phone tax provision. But Clinton used his veto pen just before midnight Oct. 30 to send a message to Congress. He had wanted money for education programs in the bill, too. When it wasn't added, he axed the entire measure, leaving the phone tax intact.

Opponents of the tax, created in 1898 to help pay for the Spanish-American War, plan to rejoin the tax fight when Congress returns for a lame-duck session after the general election. Then they'll look to add the phone tax provision to a bill that's more acceptable to the White House.

The tenacity of the tax, however, is no surprise to those who know its history. Over the last century, the tax has been abolished and reinstated numerous times.

Phased in phone relief
When -- or if -- this latest move to kill the phone tax succeeds, the charge will begin fading from telephone bills across the country.

Thirty days after the bill becomes law, the tax will drop to 2 percent. It would remain there through Sept. 30, 2001.

On Oct. 1, 2001, the rate would go to 1 percent and stay there through Sept. 30, 2002.

Full repeal of the tax would be on Oct. 1, 2002.

Monthly taxes for many phone options
The charge shows up on every phone bill that goes to the 99 million American telephone service subscribers, often designated as FET for federal excise tax.

And while 3 percent might not sound like much, consumer activists and communication industry representatives note that it can add up. The tax can be applied to myriad phone options each month: local subscriber line charges, specialty features like Call Waiting and Caller ID, local toll charges, long-distance calls, wireless service and directory assistance.

The phone tax money has been a windfall to the U.S. Treasury because it is not designated for specific government programs like other excise taxes, such as gas taxes that are funneled to the federal highway trust fund.

But it's the telephone tax's contribution to the current budget surplus that allowed Democrats and Republicans to agree on ending the charge.

Tax repeal linked to tax-free Internet efforts
One of the legislation's original sponsors also hailed elimination of the phone tax as critical to the continued growth of communications technology.

"Today, this tax is paid by everyone who uses a telephone, makes a call on a cell phone or uses a phone line to access the Internet," said Rep. Rob Portman (R-Ohio). And with the rapid pace of technological change, he noted, the differences between traditional telecommunications, the Internet and other technologies is increasingly blurred.

"For example, 96 percent of households with Internet access use telephone lines to go online," Portman said. "If the federal phone tax remains on the books, it would jeopardize recent efforts to keep the Internet tax-free."

Nothing lasts -- or disappears -- forever
A word of historical warning, however. Over the last century, the tax has been abolished and reinstated numerous times.

It started out in 1898 as a penny addition to long-distance calls of 15 cents or more and was supposed to be only temporary. But it has never disappeared for long, and at one point climbed to 25 percent. Federal lawmakers designated the tax as "permanent" in 1990 when they set its current 3 percent rate.

So consumers would be well advised to take full advantage of this latest phone tax repeal, if it makes it into law. You just never know when Congress might decide a "temporary" excise tax on calls is necessary again.

--Posted Nov. 3, 2000