How Phone Fees Are Cheating You

0 Comments | Insight on the News, August 7, 2000 | by John Elvin

Telephone companies are gently extracting `mandatory contributions' from consumers to lard a fund advocated by Al Gore to subsidize Internet connections for the poor.

When is a tax not a tax but a fee -- or, to euphemize, a mandatory contribution? Many consumers are discovering the answer in a fee tacked on to bills for long-distance telephone service to pay for Internet connections for "underprivileged" schools, libraries and health-care facilities.

That albatross hangs this election year around the neck of Vice President Al Gore because of his enthusiastic advocacy for using federal Universal Service Fund, or USF, fees to subsidize Internet connections for "the poor." Conservative activists, joined increasingly by other hardworking taxpayers, are calling this the "Gore tax" and rumbling about taxation without representation. Conservative activist Howard Phillips, the Constitution Party's presidential candidate, tells Insight: "Allowing the FCC [Federal Communications Commission] to levy a tax does violence to the Constitution, which specifies that such powers may not be delegated by Congress."

But Gore claims that, by being made to pay this mandatory fee through the telephone companies, America has "responded" to a challenge "to connect every classroom -- inner-city, rural, suburban -- to the Information Superhighway." President Clinton, shortly after signing the Telecommunications Act into law, also strongly endorsed the so-called e-rate, or education-discount rate., for schools and libraries -- which he said would "require the telecommunications service providers to give the schools and libraries affordable rates for Internet access." He completely neglected to mention that telephone users would be footing the bill for the freebies.

The USF fees are collected from the telephone companies by the FCC as a -- the term is so marvelous an example of Washington weasel-words --"mandatory contribution" under terms of the Telecommunications Act of 1996. It is stipulated in the Snowe-Rockefeller amendment to the act, which artfully avoided mentioning consumers in the following language: "Every telecommunications carrier that provides interstate telecommunications services shall contribute, on a equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the [FCC] to preserve and advance universal service."

At the time, the Wall Street Journal editorialized that, "This language represents a complete delegation of taxing power from Congress to the FCC.... Congress is trying to take the money but not the blame." And, of course, as is the case with levies on businesses, the consumer ultimately pays the bill. Some carriers responded by adding a flat fee to phone bills and others charge a percentage of long-distance costs.

Ron Nehring, a telecommunications-issues expert with Americans for Tax Reform, tells Insight that despite the political difficulties of doing so, the universal service fee, originally to subsidize rural telecommunications service, simply should be eliminated -- if only because technological advancements such as wireless telephone service have rendered it an anachronism. What political difficulties would such a move face? "Federal, state and local governments look to people's telephone bills and utility bills as a way to sneak in hidden taxes," Nehring explains. "Politicians like taxes that are hidden or cloaked under a variety of mechanisms."

Consumers are not imagining the higher costs. "Most residential long-distance consumers are paying between 20 percent and 50 percent more today than they were in December of 1999," says Samuel A. Simon, chairman of the Telecommunications Research and Action Center. He says some of the increase is due to skyrocketing rates for services such as directory assistance and calling cards, but it also is attributable to increases in the universal service fees.

One congressional leader who would seem likely to have the power and influence to change the situation is Sen. Conrad Burns, a Montana Republican who is chairman of the Senate Commerce subcommittee on Communications. "By adding this separate, enormous [Internet] program to the universal fund, they have diverted the universal fund from its initial goal and increased the fund without the consent of Congress, basically increasing taxes on the American people without the consent of the American people," says Burns spokesman Ben O'Connell.

Burns, who has a largely rural constituency, supports the effort to aid isolated schools, libraries and health-care facilities, but he wanted to fund the Internet connection program through the federal excise tax on telephone calls, a levy initiated in 1.898 during the Spanish-American War as a temporary measure. His proposal probably is dead, since the House has voted 420-2 to repeal the federal communications excise tax and the Senate is very likely to follow.

Does the issue have potential as an election-year theme? The Gore tax may be a sleeper, says Nehring of Americans for Tax Reform. Federal, state and local governments have so taken advantage of taxation via people's telephone and utility bills that the public finally is beginning to take notice. "In order to understand the saliency of this issue, all you have to do is go on a talk-radio show and mention it," Nehring tells Insight. "You don't have to stoke the fires; hordes of furious people just call in."