Hang Up on the Cell Phone Tax!

Pennsylvania policymakers frequently talk about building and nurturing a hightech economy in the Commonwealth—yet the latest effort to raise taxes on the wireless telephone industry reveals that many of them have failed to grasp how to develop such an economy.

Gov. Ed Rendell, as part of his “Plan for a New Pennsylvania,” called for extending the state’s gross receipts tax (GRT) to include in-state cellular phone calls and other telecommunications operations—a tax increase estimated to generate over $200 million annually for the government. Even worse, businesses subjected to the new tax would have to prepay the entire year’s tax bill by March 15—meaning that since they would have received customer payments from only one monthly billing cycle by that time, such companies would have to borrow money (both externally and from internal operations) in order to make the payment.

Wireless service, of course, is already taxed at the state and local levels. Therefore, the addition of the GRT would effectively constitute double taxation on the same service. According to the Cellular Telecommunications and Internet Association, the proposed increase would result in a combined 15% increase in monthly consumer bills, and would give Pennsylvania one of the highest such rates in the nation. Given the Commonwealth’s already sky-high rankings among its competitor states in terms of its corporate net income (CNI) and capital stock and franchise (CSF) taxes, the last thing Pennsylvania needs is another addition to its list of uncompetitive business tax rates—particularly in an industry policymakers claim to want to grow.

Of course, proponents of the wireless tax increase argue that telecommunications companies must “pay their fair share.” However, these politicians once again fail to recognize that this tax hike—like all other business tax increases—will simply be passed on to consumers and workers.

Individual and business consumers will feel its impact as the wireless industry is forced to cut back (or eliminate entirely) investment in new equipment and infrastructure that would likely lead to improved products and services. The effect on small and medium-sized businesses will be particularly dramatic, due to the fact that many of them are increasingly utilizing wireless technology to improve efficiency and reduce costs, and any rise in the cost of such technology will obviously discourage its use. Meanwhile, wireless industry workers will almost certainly see fewer new job opportunities, as well as smaller (or nonexistent) wage and benefit increases in the coming years.

Given that all of the aforementioned outcomes have already taken place in other Pennsylvania industries as a result of the Commonwealth’s past and present high business-tax policies, it is troubling that policymakers would want to subject the wireless industry to the same fate. Yet they seem determined to ignore the evidence that increased taxes have discouraged out-of-state firms (of all types) from locating in Pennsylvania, choked off investment by existing Pennsylvania companies, and given those companies that still remain added incentive to move to states with friendlier tax climates.

Instead of looking to raise taxes, Gov. Rendell should follow the example of other Democratic governors across the nation who have reduced government spending to balance their budgets. If Pennsylvania policymakers are truly interested in making the Commonwealth a better place to do business, they should “hang up” on the wireless telephone tax proposal and put it on the “Do Not Call” list.

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Grant R. Gulibon is senior policy analyst at the Commonwealth Foundation, a free-market public policy research and educational institute based in Harrisburg. For more information, visit www.CommonwealthFoundation.org.