The War Tax That Never Went Away

by Ted Roberts

[Posted on Tuesday, March 14, 2006]
Subscribe at email services and tell others.

We Americans are far too generous with Uncle Sam. Why do we yield to his pleas for funds so readily? He's the spendthrift uncle who's flat broke, but still likes to dress well and drive a Mercedes to his bankruptcy hearing. So, he drops by at suppertime, has a free meal, and hits you up for a hundred or so.

Historically, we've been a soft touch ever since that whiskey tax rebellion in the late 1700's. The infant government sent soldiers and cannons to blow the heart out of a political cause. And so soon after our glory years of tax abhorrence when we revolted over a 3-pence tax on a pound of tea. Three pence on tea! And we turned Boston harbor into a giant cup of instant tea, lit the fuse of revolution, and turned the world upside down.

But evidently by 1898 we had lost our passion. Uncle Sam wanted to fight a comic opera war with Spain. Safe and short. A nobody-gets-hurt war. But in those years credit was not yet enthroned. You couldn't put the Army payroll on a credit card. So, first you get the money — then you fight the war.

Like today, the government looked for pockets to pick. Ah, that new-fangled instrument that jangled your nerves at suppertime. Why not burden it with a flat tax to cover the costs of the war? Maybe telephone talkers, so busy yapping wouldn't even notice. The tax was initially a penny a call — a single cent. And here's the ultimate puzzle: there were only 1500 to 2000 phones in the United States. Operating under the premise that any tax is a great tax, regardless of income, Congress imposed this penny levy. Gross income, l500 pennies a month? Evidently a bargain-basement war was in the offing.

In 1902 the tax was repealed, but then revived in 1914 (World War I loomed) as the congress noticed that telephones were no longer a novelty. There was real money to be made from a phone tax. Fifteen hundred pennies had grown to many thousands of dollars.

Typically our politicians kept a sharp eye on the talk tax, as they called it. So that by 1990, phones still multiplying like rabbits on viagra, the congress upped the levy to the current 3%. But by now, we, the talking public, were so plush, pliable, and tax-immunized that we didn't even scream into our phones at our representatives in Congress. And don't forget that the 3% is in addition to the state tax of roughly 5% imposed by your state Public Service Commission.

One hundred and eight years passed. The roughriders gave way to the B-2 Bomber. The Spanish-American War lies dusty in the annals of history; only one American out a hundred remembers "the Maine." But we still pay the tax. Reckoned properly — counting a century of tax money and its compounding since 1898 — the cost of that short fracas to taxpayers might equal the bills of World War I. The war's over! But not the tax. As the lyrics say, "the song has ended, but the melody lingers on."

This special species of tax connivance is well known to civic state and federal plunderers. Isn't the Brooklyn Bridge paid for? So, why is there a toll? the New Jersey Turnpike? Bridges and toll roads paid for decades ago still gobble our dollars. And don't answer, "maintenance," a mere fraction of the building cost. These kinds of public right of ways have become cash cows.

But taxes — like any balloon inflated with hot air — always grow larger. So now the Congressional Committee on taxation has developed an option to apply this tax to "all communication services."

Dictatorship by another name: $35

Unrealistic. Because big outfits like Office Max and Honeywell International are fighting even the basic tax in court. And they've won a few preliminary cases. In the view of those who legally study this issue, the IRS case is as moribund as the cell phone that you dropped in the kitchen sink full of dish water. The congressional Budget Office worries that by 2007 the IRS will lose the tax revenue on toll long distance calls. Government revenue on phone services will drop from 5.9 billion to 4.6 billion. Obviously, in this improving but imperfect world some taxes will remain. Don't celebrate yet, because in 2000 the House of Representatives voted to scrap the tax. But the senate did nothing.

I'd feel a little bit better about that 3% tax if the phone companies, joining ranks with us fiscally oppressed, put a big fat asterisk beside the tax. And down below informed a million Americans that this eternal tax was initiated in 1898. I wasn't there in 1898, but I guarantee you that its sponsors promised its demise when the war ended. They always do and they always lie.

Check your phone bill and notice that one hundred and eight year old fee. Then go look up the Spanish-American War on the Internet.

Might as well know what you're paying for.

---

Ted Roberts writes from Huntsville, Alabama. Send him mail. See his Mises.org Articles Archive. Visit the Mises.org Blog.