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Tax Wizard
Winter 1999

A Quarterly feature highlighting tax Web Sites

This month we feature a press release from the House Policy Committee

The Policy Committee is the policy-making arm of the House Majority. It is comprised of the House Leadership (the Speaker, the Majority Leader, the Majority Whip, the Conference Chairman, the Policy Chairman, the Conference Vice Chairman, the Conference Secretary, the NRCC Chairman, and the elected leaders of the Junior, Sophomore, and Freshman classes), the chairmen of key standing committees of the House, and Members elected by region and seniority. The Committee meets weekly to consider legislation and issues of national importance.



With Every Long-Distance Phone Call, Americans Pay the Price for the Vice President's Costly Government Program

September 16, 1998

In January 1998, without the legal power to do so, the Clinton Administration demanded that every American pay a new tax on their long-distance telephone calls. The tax has been dubbed the "Gore Tax" because it is the pet project of Vice President Al Gore. It will cost taxpayers an estimated $2.65 billion this year. The Clinton budget calls for increasing this illegal tax by 500% over the next five years.

Time Magazine and other publications were among the first to label this $2.65 billion new tax the "Gore Tax" in the course of reporting Gore's cheerleading for it. Gore, they noted, successfully fought for the inclusion of several sentences in the 1996 Telecommunications Act that asked the Federal Communications Commission to "enhance" schools' and libraries' access to "advanced telecommunications and information services" such as the Internet. This language, however, did not enact a new tax. But Al Gore demanded that the FCC levy a massive new tax by regulation so that his Administration could spend it without control by Congress.

The illegal manner in which the Gore Tax is being extracted from consumers makes it especially offensive.

The Constitution clearly vests the power to tax in Congress alone. Congress could not, if it wished to do so, "delegate" the authority to set tax rates to an executive-branch agency. The Constitution plainly prohibits the FCC or the Vice President from arrogating this "authority" to themselves.

It should therefore be unthinkable that the FCC could in turn delegate taxing authority to a private corporation, the newly-created Universal Service Administration Company. Yet this is precisely what Clinton, Gore, and the FCC have done. They have even "authorized" the company to set the rate of the tax itself.

Capping this outrage is the way the Vice President has tried to hide this astronomically expensive tax from the public. While the FCC tapped long-distance companies to collect the tax, both the Vice President and the agency waged a vigorous campaign to block the phone companies from truthfully reporting the tax to consumers. Instead of separating the Gore Tax on consumers' bills, Gore's staff pressured long-distance companies to hide the tax from the public.

In response to this considerable political pressure, some phone companies decided not to include the tax as a separate item on consumers' bills. Instead, the tax was incorporated into their basic per-minute rate. Some phone companies have, however, chosen to separately itemize the tax on their phone bills. Most have taken steps to avoid offending Gore by labeling the tax in a euphemistic manner--such as describing it as a "universal connectivity charge." Even now, the FCC and the Clinton Administration are crafting rules that would keep the tax hidden from view. If Al Gore has his way, the American people will never see the true costs of his massive illegal tax.

The E-Rate Program: A Good Idea Turned Illegal

The tax revenues raised from the Gore Tax are earmarked to be spent on subsidizing Internet access for schools and libraries. The program itself pursues a laudable goal--one that is generally consistent with the 1996 Telecommunications Act. But Congress never authorized the FCC to set up the "E-Rate" program as engineered by the Vice President and the Clinton Administration.

Not only the Gore Tax but the E-Rate program it is being used to finance violate the law. Already, the U.S. General Accounting Office has declared key portions of the program to be illegal. In a February 10, 1998, letter to Congress, the GAO wrote that the FCC "exceeded its authority" when it created two private corporations to administer the program.

Time Magazine has described Gore's E-Rate program as "an out-of-control entitlement engineered by an out-of-control bureaucracy." While education bureaucracies have already requested more than $2 billion for 1998 alone--far more than originally estimated--only 4 percent of this is for Internet access. Fully two-thirds will go for "internal connections," including the costs of ripping up walls to install wiring, repairing carpets, painting, and putting in new computers. Another reason for the excessive costs: price is not the sole factor in evaluating a company's bid to connect a school to the Internet, meaning that higher cost bidders can be awarded contracts.

The Schools and Libraries Corporation shows the effects of being uncontrolled by Congress or the law. The private company created to dispense the largesse raised by the Gore Tax was to pay its Chief Executive Officer, a former Gore aide, an annual salary of $200,000--as much as the President of the United States, and more than every Cabinet officer and Member of Congress.

A Dangerous Federal Intrusion Into Local Educational Decision-Making

"President Clinton has said that we must provide our children with an education that is second to none. . . . Approval of the E-Rate is the cornerstone which makes that goal a reality."

--Vice President Al Gore

"What's wrong with education cannot be fixed with technology. . . . We can put a Web site in every school--none of this is bad. It's bad only if it lulls us into thinking we're doing something to solve the problem with education."

--Steve Jobs, founder of Apple Computer

Perhaps the most dangerous consequence of illegally enacting both the Gore Tax and the E-Rate program is that policy makers have yet to consider the unintended effects. The program is a massive federal involvement in local educational decision-making. Under the E-Rate program, the federal government will change the way every teacher runs every classroom in America. Some 30,000 schools across the country are being lured by the prospects of generous subsidies to rush forward to join the Gore program--and to do so without fully understanding its true costs, or the real merits of the Net as a teaching tool.

While wiring classrooms has been described as a one-time capital investment, in fact, it's more properly analogized to introducing a massive annual cost. The Gore E-Rate program will necessarily displace local school resources that might be put to better use elsewhere, such as hiring new teachers or reducing class sizes. It will require that local funds be spent to train teachers how to use computers in class, and to constantly upgrade computer hardware and software. According to one study, every dollar spent on wiring schools requires schools to spend an additional $3 on computers and related equipment. Most participants in the Gore program won't fully realize these downstream costs until they've already headed well down that road.

And even as the E-Rate program is effectively forcing the Internet into America's schoolrooms, experts are sharply divided over whether this will produce significant educational benefits--or instead, dilute students' attention to language and encourage "surfing" and "browsing" instead of a more disciplined approach to learning. Yale University's Professor of Computer Science David Gelernter (whose ardent support of technology made him a target of the Unabomber) expresses great skepticism about the Gore program. It is, he said, "toxic quackery" and an "educational disaster in the making." The Atlantic Monthly has reported that some schools have already eliminated music, art, or physical education programs in order to find more funding for computers in classrooms. And parents are increasingly expressing concern about how computers are being used, in the wake of anecdotes and news reports that schoolchildren are using the Internet during class hours for non-educational purposes, or even to view obscene or objectionable material.

If it remains a question how best to use computers in the classroom, there is all the more reason that Congress should reclaim its rightful powers to tax and spend--so that national policy will be considered by our elected representatives before it is imposed on the entire nation.

Bi-Partisan Condemnation of the Gore Tax

The Clinton Administration's new taxes have made telephone service among the most heavily-taxed services in America. These new taxes are making it far more expensive than necessary for parents to stay in touch with their children at college, for small businesses to sell products across state lines, or for families to get caught up during the holidays.

Prior to the Gore Tax, federal taxes and fees were already adding $13 billion a year to the price of phone calls. The 3% federal excise tax costs consumers $5 billion annually. Another $8 billion is collected from consumers through a $3.50 monthly "subscriber line charge" that the federal government imposes on every phone line in America. In 1997, the Clinton Administration's FCC pushed through its "modem tax," requiring every household with a second phone line to pay an additional $1.50 per month to raise more money to subsidize phone service in rural and high-cost areas.

For these reasons, the Chairmen and senior Democrats on the House and Senate Commerce Committees are demanding the dismantling of both the Gore Tax and the E-Rate program. In a joint letter, they called the whole scheme "a spectacular failure" and "a raw deal for consumers." Two senior Democrats have been especially outspoken in their criticism of the Gore Tax:

  • Rep. John Dingell (D-MI): "We did not vote to have the FCC set up a giant bureaucracy headed by someone paid as much as the President. The era of Kings in this country ended when we kicked out George III."
  • Sen. Fritz Hollings (D-SC): "Congress did not intend for the FCC to raise telephone rates of every-day Americans to fund these programs. If the Commission won't start protecting ratepayers, then Congress will step in and do it for them."

Liberal advocacy groups, too, have been highly critical--not just of the costly new tax, but also of the secretive way in which it has been implemented. The Consumer Federation of America, for instance, has called for repeal of the Gore Tax. A spokesman for the group has said that, while the group supports the goals of the E-Rate program, the FCC "could fund all these programs without raising anybody's bill. . . . We hate the way [the FCC is] paying for it."

Congress is Committed to Eliminating the Gore Tax

The Congress understands that a daily necessity like telephone service shouldn't be taxed as if it were a luxury. Instead of raising your phone bills, the majority in Congress wants to reduce telephone taxes by ending the 5% Gore Tax, cutting the existing excise taxes, and using existing telephone taxes to finance a more thoughtfully designed E-Rate program. This responsible action will ensure that the government does not lead businesses, schools, and telephone users even further down a path that could cost them billions of dollars. It will also help ensure that local school districts have the opportunity to give careful study to both the costs and benefits of using the Internet in our Nation's classrooms.

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