Regulatory Reform

Searching for a Fairer, Simpler, Clearer Mobile Tax Policy

A recent Pew Research Center’s report has found that mobile internet usage is increasing across all demographics, most notably among young adult and non-white members of society. Of the overwhelming majority of American adults who own mobile phones, 55% use their phones to access online content. While young adults and non-whites are most likely to conduct online activity using a mobile phone, nearly a third (31%) of mobile internet users regard mobile phones as their primary source of online access, as opposed to devices such as laptops and desktop computers.

Mobile Internet usage is on the rise, largely due to the growing prevalence of smartphones, especially among minorities. Minorities, particularly African-American and Hispanic consumers, own more smartphones than the overall population. Two recent reports from Nielsen indicate that 8% more African-American adults own smartphones than the overall population, and Hispanics are 28% more likely to own a smartphone than non-Hispanic Whites.

Policymakers should be pleased with these results as it illustrates more Americans are able to access the economic opportunities of the Internet. However, they must remain vigilant in their opposition to policies and actions that could become impediments to further growth in mobile Internet usage and adoption. New taxes and regulations in the wireless industry threaten to slow the rapid rise of mobile Internet growth. Matthew Mitchell and Thomas Stratmann’s working paper published earlier this year indicates that the direct and indirect costs resulting from disproportionate taxation are economically damaging. Mitchell and Stratmann argue that a “tragedy of the anticommons” occurs when multiple parties have the ability to exclude others from accessing a common resource. Such a circumstance typically leads to underutilization of resources. In the case at hand, overlapping municipal governances – i.e. federal, state, county, city and local districts – have led to multiple taxes. Mitchell and Stratmann found that an average phone bill supported 3.7 different taxes, with some supporting as many as 11. In a telling example of a “tragedy of the anticommons,” this complex tax system has resulted in decreased mobile usage.

Rather than multiple levels of taxation, what policymakers should do is encourage fairer, simpler, and clearer tax policies. Policymakers appear to recognize that the status quo is untenable and are taking steps to halt further increases in taxes on mobile devices. One such step, the Wireless Tax Fairness Act, would institute a five-year moratorium on any new taxes and fees for wireless customers. According to MyWireless.org, 47 states and theDistrict of Columbia exact a higher tax rate for wireless customers than the general sales tax rate for other goods and services. Given the widespread adoption of mobile technology, a disproportionate tax burden is counterintuitive. The telecommunications industry has been successful in part because it was founded as and has remained a largely free market, but additional burdensome taxes will be detrimental to future growth.

According to a survey by MyWireless.org, 80% of consumers support a five-year suspension of new wireless taxes and fees, with 83% of African-Americans and 85% of Hispanics in support of the measure. Absent the Wireless Tax Fairness Act, future tax increases and unpredictability could discourage minorities from entering the market. African-Americans and Hispanics have demonstrated the largest mobile internet use and the strongest opposition to tax increases. Alienating this strong consumer base is not only counterintuitive, but may have an adverse impact on future wireless adoption and use. Protecting consumers from high taxes on their mobile devices helps to ensure that a robust market characterized by competition and growth continues uninterrupted.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and …

+ Regulatory Reform In Depth