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Federal Communications Commission
1919 - M Street, N.W.
Washington, D.C. 20554
News media information 202 / 418-0500
Fax-On-Demand 202 / 418-2830
Internet: http://www.fcc.gov

This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

June 1, 1998


Six months ago, the Federal Communications Commission imposed on American consumers a new tax on telecommunications services. It is a tax that is paid by the consumer either through higher rates or through rates that would have been lower without the tax.

Surely, American consumers must know they are paying this tax. No, the sad fact is that most American consumers do not even know that they are paying this tax. It does not appear on most bills.

The ignorance of most American consumers about this tax is not an accident. It is a planned ignorance. If American consumers knew about the tax, they might not want to pay it.

They might want to know how this tax came into being when it was not directly legislated.

They might want to know why they were not informed about the new tax.

The answers to these questions are not easy. They are not pretty. Mere citizens sometimes do not know about important decisions in Washington that affect them directly.

Taxes may increase again

This summer, the hidden tax is likely to increase again. Political pressure will be brought to bear to keep it quiet.

Some will say that overall telephone rates will not increase because, coincidentally, other hidden taxes will decrease. Are American consumers really supposed to be comforted by the discovery of yet more hidden taxes? Moreover, telephone rates would actually decrease significantly if the higher rates for the new hidden tax did not increase.

Some will say that the new hidden tax will be used for a worthy cause, to support schools and libraries. If the cause is good, surely that is all the more reason to let the public know about the tax.

The Schools and Libraries Corporation, which disburses funds from the new tax, has received requests for approximately $2 billion for 1998. Of this amount, approximately $700 million is for telecommunications services. The remaining requests of approximately $1.3 billion are for what has euphemistically been described as "inside wiring," but, in fact, is more accurately described as "internal computer networks," equipment and plant not contemplated, much less mandated, for discounts under the Telecommunications Act of 1996.

A better short-term policy

A prudent policy would be to fund only those requests for telecommunications services for 1998 from taxes that have already been collected in the first half of 1998. That would leave the second half of the year as a time for the Corporation to reorganize itself and to adopt better auditing procedures. It would also give the FCC an opportunity to focus on the most important but unresolved universal service issue: rural high-cost service.

This prudent policy would allow an effective tax rate of zero for the new schools and library fund, and it would also allow consumers to have lower long-distance rates from reduced access charges. Obviously, there is no reason to report to the American consumer a tax rate of zero.

This prudent policy may not be adopted. Instead, efforts will be made to increase the schools and libraries tax and to keep it hidden from the direct view of the American public. Long-distance customers will not have rates go down as much as possible, if they go down at all.

Truth in taxation

A little more than two hundred years ago, American colonists rebelled against excessive taxes from a distant government. One of their mottos was "No taxation without representation." Those colonists were at least aware of the taxes they were paying.

Telephone companies have always had the opportunity to inform customers of the taxes and charges they pay that are directly related to their subscription usage. But telephone companies have not always exercised that opportunity. Consumers have been left in the dark.

AT&T, to its credit, has decided that this summer it will tell consumers how much they are paying for universal service charges. An even better policy would be to distinguish between those charges paid for the clearly lawful rural and low-income programs and the less firm schools and libraries program.

Some in Washington will attack AT&T. They will say that AT&T is not playing by the rules, that AT&T is not siding with special interests against mere citizens.

On the issue of informing the public, AT&T is on the right side. I salute them.

Efforts will doubtlessly be made this summer to silence AT&T and to keep the American consumer in the dark. If, by the end of the summer, telephone customers do not know of the taxes and charges they are paying, it will have been a summer of victory for special interests in Washington and summer of defeat for the mere American consumer.

- FCC -