Regulatory Reform

Wireless Tax Burden Harms US Economy

Since the Federal Communications Commission approved mobile devices for public consumption in 1983, the use of wireless phones has increased by 25 to 35 percent per year. Today, mobile technology is dispersed across more than 90 percent of the U.S. population and the number of cell phones in America exceeds the number of individuals.

Americans increasingly rely on this now ubiquitous technology. In fact, the Center for Disease Control reports that a shocking fifty percent of homes rely exclusively on wireless service. Less surprisingly, over 80 percent of participants in the TIME mobile survey believed they could not go a single day without their mobile device.

Perhaps Americans are cell phone addicts because these devices are no longer just phones; time once split among multiple connected devices—the Internet, calendars, and digital cameras—is now poured into a single device. Given their utility, it is estimated that within the next several years 87 percent of connected devices sold will be tablets or smartphones.

Cell phones enhance Americans’ lives, but are also a net positive for the U.S. economy. While Americans are often caught reading text messages under their desks, they are also seen replying to emails during their morning commute. In fact, studies show that owning a cell phone adds approximately two hours to one’s workday.

Of course, mobile phones aren’t only good for the economy because of increased worker productivity. Since the first iPhone was released in 2007, wireless phones have generated an entirely new—and incredibly lucrative—sector of the economy: the app economy. The app economy is responsible for supporting 3.8 million jobs and contributing an annual $195.5 billion to the U.S. GDP.

It’s no surprise that government has turned to this successful industry as a source of revenue and, with yesterday’s hearings on competition in the wireless market and a simplified tax code, it seems appropriate to discuss tax treatment of the wireless industry.

Wireless taxes and fees have increased three times faster than those levied on general goods and services. Wireless consumers today—9 in 10 Americans—face a combined federal, state, and local tax burden averaging over 17 percent of income. In fact, 47 states and the District of Columbia pay more in wireless taxes and fees than in general sales taxes, while states like Nebraska and Washington pay combined taxes and fees of 24 percent on monthly wireless services.

The impact of wireless taxes on the economy—as well as our wallets—is enormous. According to Jerry Hausman of the National Bureau of Economic Research, taxes on wireless phones cost the economy $2.56 billion more than the $4.79 billion raised in revenue.

As Americans continue to rely exclusively on their mobile device, it is imperative that policymakers work to encourage, rather than limit, access to affordable wireless services. Between 2005 and 2014, the wireless consumer price index fell by 10 percent—compared with a 19 percent increase in the consumer price index for all items. This data suggests that the private sector is doing its part to offer Americans affordable services, and the government should seek to do the same.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth