May 22, 2007

Are Cell Phones a Sin? Florida Thinks So

In virtually every state, some of the items we consume are taxed at higher rates than the general sales tax rate. These tend to be items that are consumed by two categories of people: tourists from other states and "sinners." A good example of the first category is hotels, which in Washington DC are taxed at 14.5 percent, more than double the regular sales tax rate. This is seen as a good way of dinging visitors from around the country, since any DC resident who stays in a DC hotel is, in fact, staying less than 10 miles away from their actual home. Typically, the second category includes alcohol, cigarettes, and (more or less) gasoline-- things that we generally wish people would consume less of.

Then there are cell phones. It's hard to describe using cell phones as an inherently damaging activity (unless you're driving at the same time), apart from the subtle but real damage it arguably does to our social fabric. But Florida, like many states, has decided to tax the heck out of cell phone use, with combined state and local tax rates approaching 20 percent in some areas.

Once upon a time, there was a pretty good argument for considering cell phones a "luxury" that could be taxed at a higher rate because its consumers could afford it. (Remember Gordon Gekko's lunch-box-sized cell phone in "Wall Street?) But now these phones are pretty universal, and a growing number of consumers are abandoning their land lines entirely and living on a cell phone. Given this change, cell phones are approaching the vaunted status of "necessity" currently enjoyed by food, clothing and shelter.

So why tax this pseudo-necessity at a rate three times higher than the regular sales tax rate? Because it's easy, says one analyst:
Kurt Wenner, a senior analyst with Florida Tax Watch, also said government has a penchant for taxing utilities because companies pass through the taxes to all consumers through their bills. "It's an easy way to do it," Wenner said.
This is exactly right. High taxes on utilities have historically been an easy thing for lawmakers to do because the costs get passed straight through to consumers.

Current legislation would take baby steps toward equalizing the tax treatment of phone and other services-- but the real question Florida lawmakers should be asking themselves is, why baby steps? Why not tax this form of consumption at the regular sales tax rate right now? The most likely answer-- that lawmakers are too busy finding creative ways of blowing tens of billions of dollars on poorly designed property tax "reform" schemes-- isn't very comforting.


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