May 26, 2006
The War Is Over! Posted by John Steele Gordon at 12:30 PM EST Well, at least the Spanish-American one, that is.
Yesterday the Treasury, having lost in no fewer than five circuit courts of appeal, threw in the towel and decided to stop collecting a 3-percent tax on long-distance calls that had been “temporarily” imposed in 1898 to help finance the conflict with Spain. The conflict lasted a few months; the tax lasted 108 years.
There are few phrases more oxymoronic than “temporary tax.” Politicians have an infinite appetite for spending money, differing mostly on what and whom to spend it on. And therefore governments, like drunken sailors, are always short of cash. So yesterday’s temporary tax becomes today’s vital income to meet “real needs” (re-election, of course, being the greatest need of all).
The economic and technological world in which the long-distance tax was imposed vanished decades ago. In 1898 the telephone was only 22 years old, and there were only 681,000 subscribers to phone service in the entire country, which then had a population of about 75 million. Most of those subscribers were businesses. The few individuals who had phones of their own were wealthy, as phone service was very, very expensive. The basic annual charge was about $100, and a call to Chicago from New York, about as far as one could call at the turn of the twentieth century, was priced at $5.45. In 1898 my grandfather, then a 16-year-old runner on Wall Street, was earning $5 a week. (My grandfather would spend a nickel each day to buy lunch; he hated beer all his life, but he would buy one at a bar because that gave him access to the “free lunch,” and he would give the beer to the thirstiest-looking patron in the place.)
Today telephones are somewhere beyond ubiquitous. Six-year-olds take them to school along with their peanut-butter-and-jelly sandwiches. I have three lines at home plus a cell phone. I haven’t the faintest idea what it would cost me to call Chicago because the amount is too trivial to bother with.
The very meaning of long distance has more or less vanished. I can remember as a child being told to pipe down because some adult was talking long-distance. An overseas phone call was virtually a state occasion. Today many people pay only a lump sum every month for most long distance, and when you call a company?often toll-free?about something, the person at the other end might well be in Bangalore.
Regardless, the Treasury kept doggedly collecting this tax because Congress doggedly refused to repeal it, even though it had long since become a trivial part of federal income. The tax yielded about $5 billion a year, less than one quarter of one percent of federal revenues. Total federal tax receipts over the last two years have risen more than a hundred times that much. Thus the loss of $5 billion in revenues represents to the federal government about what $250 represents to a man with a take-home income of $100,000 that has been rising at the rate of $10,000 a year.
Finally phone companies began suing, arguing that the tax could only properly be imposed on individual calls, not on plans, and the courts agreed.
But if think your phone is untaxed, it isn’t. About 17 percent of your monthly cell phone bill is taxes and fees.
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