Wireless taxes on cell phone and internet service are at an all time high and they are increasing at a much faster rate than other sales taxes. These unreasonably high and increasing wireless taxes are hurting employment growth, the ability of women to work from home, and the prospects of the poor.

Research by Scott Mackey explains that wireless users are burdened with an average tax rate of 16.3 percent, twice the rate than the average retail sales tax. Actual rates differ among states, with Nebraska residents being hit hardest at 26.39 percent. What is going on here? Digital Liberty explains:

Much of the blame can be laid at the feet of the federal government, which has raised the federal Universal Service Fund Tax from 2.99% in 2006 to 5.05% today.  However, the problem also comes from state and local governments, which continue to raise telecom and 9-1-1 taxes, only to place the revenue into the general fund for unrelated spending.  By targeting telecom taxes instead of broad-based income or sales taxes, politicians can make their actions go relatively unnoticed, while continuing to raise taxes on virtually every citizen.

High wireless taxes hurt overall employment growth by increasing the costs of doing business. When businesses are forced to pay higher taxes, they have less money available to hire more workers. Furthermore, businesses who wish to equip their workers with mobile devices, in order to increase their employees’ work-place flexibility and productivity feel the direct impact of these taxes.

Women tend to have a greater need for more workplace-flexibility as they are most often the main care-takers for children and elderly parents. Higher wireless taxes increase the costs for women working from home, and employers who would otherwise consider allowing for more workplace-flexibility may be discouraged from doing so, because of the high costs of equipping workers with mobile devices.

Furthermore, low and middle income customers, who rely much more heavily on wireless phones and internet access, are hit hardest by high wireless taxes. When it comes to cell phones, for example, per-line taxes are often as high as the costs of adding an additional line. In the city of Baltimore per-line taxes are $4 per month, while adding an extra line on a low-price family plan can cost as little as $5 per month.

A family that might otherwise equip their children with cell phones for the comfort of being able to call them when they are outside the home, may be discouraged from doing so when the taxes involved almost double the costs of adding the extra line. In the case of the unemployed, it may be crucial for the lower-skilled searching for work to be instantly reachable by prospective employers, or else the job might go to a different worker.

High wireless taxes, by discouraging broader use of wireless devices mean fewer jobs, less workplace flexibility, and are especially burdensome on the poor. It also makes no sense that wireless taxes should by far exceed other sales taxes. Why would we want to discourage the wider accessibility of wireless devices compared to other consumption?

Next week Tuesday, the Subcommittee on Courts Commercial and Administrative Law will hold a hearing on the Wireless Tax Fairness Act of 2011. According to Steve Largent with CTIA,

the act would place a five year moratorium on any new discriminatory state and local taxes and fees on wireless services. … This freeze would not take away any existing revenue for state and local governments, but would provide time so the localities can reform their existing tax systems. 

Wireless taxation reform is indeed necessary.