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Why you pay hidden cell phone tax

Story highlights

  • President Obama's plan to fund ConnectEd is to charge cell phone users
  • Edward McCaffery: The middle class is being gouged to pay for programs for all
  • He says Obama's proposed increase in cell phone fees is hidden as a "charge"
  • McCaffery: Why not ask wealthy Americans to pay disproportionately more for it?

President Obama has proposed expanding high-speed Internet access in public schools across the country. That seems like an obviously good idea, to me and probably to you too.

But of course, there is a rub: money.

The initiative is expected to cost $4 to $6 billion. The federal government is hardly flush with cash these days. How then will it pay the price of doing something good? The president is suggesting that the Federal Communications Commission raise the charges on cell phone users -- that is, basically, all of us (there are today more cell phones than people in the United States) -- by $4 a year for the next three years.

That is small change, to be sure, in a world of trillion dollar deficits. Who among us would begrudge today's youth better Internet access for a penny or so a day?

Edward J. McCaffery

And that may well be the "right" answer, from a moral and public policy perspective. But it is still worth pausing to make an important bigger point. We see here the same old deal with the devil that our government has been making for decades now.

Liberals like President Obama propose doing something good -- better Internet access for all today, health insurance for all Americans some days back. But, heaven forbid, we cannot ask wealthy Americans to pay disproportionately for the change. Indeed, we cannot even touch the income tax -- the one major American tax that at least pretends to be progressive -- to pay for any new social wants and needs at all.

The fact is that the changes we made to the income tax in the American Taxpayer Relief Act of 2012 -- the "fiscal cliff" fix deal from the wee early days of 2013 that raised the marginal rate on married couples earning more than $450,000 a year (yes, $450,000 a year) back to its 2001 level of 39.6%, and so on -- are supposed to be permanent.

Even if "permanent" means something like a wedding vow in my home state of California -- a year or two? -- it is clearly too early to revisit that political hot potato. Raising tax rates on the rich is a once-a-decade affair at best. Raising taxes on the middle class has become more like our daily bread.

All of the 2013 changes to the income and other taxes -- such as the gift and estate tax, which was "permanently" made largely irrelevant for 99.7% of Americans -- brought in far less revenue to the government than the expiration of the "payroll tax holiday." This latter change happened quietly, without need for any congressional action, as with the proposed mobile phone fee. As a bottom line, payroll taxes on all wage earners increased by 2% of earnings up to approximately $110,000. The social security "contribution" -- not labeled a tax, mind you -- thereby went up by as much as $4000 for a married couple. We're talking over $10 a day, now. This politically well hidden tax increase brought in almost twice as much revenue to Uncle Sam as all other 2013 changes combined.

And so the fundamental things continue to apply as time goes by -- it is the middle class that pays, and the more hidden the "surcharges," "user fees," "contributions" and so on, the better.

Back to the episode du jour. Obama's proposed increase in mobile phone fees is especially well hidden, as a "charge" that the FCC alone can impose, without congressional action, on account of the "Gore tax" from 1996, whereby then-Vice President Al Gore helped give the FCC this power.

Obama's proposal continues a trend of various forms of "excise" and user taxes -- on cigarettes, gasoline, alcohol, and telephone use, on both state and federal levels -- that is rising and accelerating. Obama was unable to deliver on his campaign pledge to raise income taxes in his first term, but he did raise federal cigarette taxes, for example, by 64 cents a pack in 2009, to just over a dollar, and he recently proposed nearly doubling that level. Meantime, there are already 17% worth of various taxes and users fees on cell phones, which the new proposal would only increase.

States and localities have been raising sales taxes for years now. No one who follows government or tax policy will be shocked if we one day, likely sooner rather than later, get a national sales or "value-added" tax (VAT) to ... well, to fund all the good that government does.

Now I happen to be a liberal who supports all this government good. But I am also a tax lawyer and professor who see the reality of the new class warfare in the U.S. Here's that reality: The middle class is being gouged to pay for programs for all, including the poor. That may all be fine and good, until one day we realize that you cannot keep getting blood from a stone, and the middle class becomes poor, too.

Then we will be left with only the rich to ask for a fair share -- unless, of course, the rich have gotten ahead of the curve, and are no longer hanging around in America for the asking. But they wouldn't do that, now, would they?

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