Late last year Chicago Mayor Rahm Emanuel announced that his 2013 budget wouldn’t rely on new tax, fines or fees.
Many city residents breathed a sigh of relief. After years of absorbing the costs of an ever-more expensive government, Chicagoans were due for a respite.
But is simply holding the line in a high-tax city really the best that can be expected? How about bucking the trend and actually lowering taxes, fines and fees?
Gripes about high sales taxes and unaffordable property taxes are heard often enough, but here’s a novel idea: reduce taxes on wireless phone service.
As many as one in four American households are dumping their landlines in favor of using wireless phones as their primary communications tool, according to a study from the National Center for Health Statistics. Many families are going wireless-only to cut costs in this challenging economy.
But the savings don’t last long. Local, state and federal governments pile heavy taxes on wireless bills. For the average customer in Illinois, the combined tax on wireless phone service is 21 percent. All of the taxes, fees and surcharges easily are more than double the sales tax rate for other goods and services in the state.
Even as the average wireless customer in America is spending less per line per month compared to two years ago, she is actually paying more for taxes, fees and surcharges.
And the problem is getting worse, according to a recent study by economist and wireless industry expert Scott Mackey. He’s been tracking rates since 2003 and found that state and local wireless taxes have been on the rise in recent years.
All in all, Illinois ranks fifth-highest among the 50 states for total taxes and fees on wireless service. Only Nebraska, Washington, New York and Florida are worse.
For Chicagoans, the government pinch is felt especially hard. In addition to paying an effective federal tax rate of 5.82 percent and a 7 percent state of Illinois telecom excise tax, Chicago wireless consumers pay a 7 percent municipal tax to the city and a $2.50 per line wireless 911 fee.
A Chicago family purchasing a four-line “family share” plan for $80.00 a month would actually end up paying more than $105 per month due to $10 in 911 fees and another $15 in additional taxes and fees. That’s $300 per year in wireless taxes. These costs quickly add up during the course of the year, leaving less for other household items, such as groceries and housing costs.
These excessive taxes and fees have attracted bipartisan attention in Congress.
In an attempt to head off higher taxes, the U.S. House of Representatives passed the Wireless Tax Fairness Act in 2011. This legislation would put a hold on higher state and local taxes and fees for a moratorium period of five years.
More than 230 representatives, including odd bedfellows Rep. Luis Gutierrez, a Chicago Democrat, and Rep. Aaron Schock, a downstate Republican, cosponsored the bill. The bill did not come up for a vote in the Senate but could be a part of ongoing tax reform discussions in Washington, D.C.
Closer to home, state and local government should take the lead in crafting a tax structure that treats businesses and consumers fairly and transparently, thereby helping to generate economic growth and new jobs. This must be accompanied by sensible reforms to the major spending drivers that blow up budgets, including pensions and health care costs.
Speaking with Chicago aldermen about his 2013 budget, Emanuel said, “reform never ends.”
Emanuel has made clear his interest in challenges like pension reform – he should add wireless tax reform to his list to start reducing the city’s high tax burden.
Kristina Rasmussen is Executive Vice President of the Illinois Policy Institute