FCC's Proposed Change Could Raise Phone Taxes

Posted by Nick Niesen on November 8th, 2010

Americans are speaking out against a proposal by the Federal Communications Commission (FCC) that could raise millions of people's phone bills. The proposal by FCC Chairman Kevin Martin has to do with a tax called the Universal Service Fund (USF).

The USF tax was established to help ensure that low-income and rural consumers have access to affordable phone services. Currently, USF money is collected on a "pay-for-what-you-use" system; a tax based on how much interstate long distance a person uses. The less a person uses long distance, the less he or she pays.

However, the FCC is proposing a monthly flat fee instead. The proposed monthly flat fee would apply to all phone numbers and other connections, regardless of how few interstate long-distance calls are made. That could raise taxes on 43 million U.S. households by more than $700 million.

Callers in California, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio, Pennsylvania, Texas and Virginia stand to be the biggest losers. Taxpayers in 10 of those 12 states-all but Texas and Minnesota-already pay more in federal USF taxes than their states get back for schools, hospitals and rural connectivity. Under the proposed FCC plan, that disparity would grow even wider. The most conservative estimate of the proposed plan-where the USF fee would shift from the current structure to a flat $1 fee, per phone line, per month-indicates that 11 of the 12 states would end up paying more into the USF than they currently do.

According to the Keep USF Fair Coalition, a consumer advocacy group, this USF proposal has grave implications for the future of telephone service nationwide. The proposed USF change also affects anyone who has friends or relatives in any of those 12 states, or does business with a person or company located there.

With low-income and elderly consumers already hit with high gas prices, higher home energy costs and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition is opposing the FCC's proposed "number"-based plan. These groups caution against balancing USF finances on the backs of the very consumers whom they were intended to help.