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Senators want to nix 1898 telecom tax

The Spanish-American War is over. So, Republican senators ask, why does a tax created to finance the war effort still exist?

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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Declan McCullagh
2 min read
The Spanish-American War may have ended over a century ago, but anyone in the U.S. with a telephone line is paying a 3 percent "luxury" tax created to fund the conflict in 1898.

That's a situation that a number of Republican senators would like to change. This week, they introduced a bill to repeal the Spanish-American War levy.

"Common sense dictates that repeal of the telephone excise tax is long overdue," said Sen. Rick Santorum, R-Pa. "Communication is not a luxury. It has become part of the basic fabric of our social and economic life." Other sponsors of the Senate legislation include Republicans Mike Crapo of Idaho and Gordon Smith of Oregon. A related bill is pending in the House of Representatives.

The obscure telecommunications tax took center stage in January when a congressional committee suggested the tax could be extended to include "all data communications services" including broadband, dial-up, fiber, cable modems, cellular and DSL (digital subscriber line) links. In addition, the Internal Revenue Service and the Treasury Department have said they are considering whether the tax should apply to Internet phone calls.

Congress enacted the so-called "luxury" excise tax at 1 cent a phone call back in 1898, when only a few thousand phone lines existed in the country. It was repealed in 1902 but was reimposed at 1 cent a call in 1914 to pay for World War I and eventually became permanent at a rate of 3 percent in 1990.

A few years ago, the House of Representatives voted overwhelmingly to repeal the excise tax, but the Senate never acted on the measure.

The bill introduced this week, called the Telephone Excise Tax Repeal Act, isn't the only proposal aimed at defanging the tax. Sen. George Allen, a Virginia Republican, has proposed the more modest approach of preventing the IRS from extending the tax to the Internet--but not eliminating it altogether.