The FCC’s Exploding Universal Service Tax

by on December 15, 2011 · 3 comments

The FCC’s universal service tax is officially out of control. The agency announced yesterday that the “universal service contribution factor” for the 1st quarter of 2012 will go up to 17.9%.  This “contribution factor” is a tax imposed on telecom companies that is adjusted on a quarterly basis to accommodate universal service programs. The FCC doesn’t like people calling it a tax, but that’s exactly what it is. And it just keeps growing and growing. In fact, as the chart below reveals, it has been exploding in recent years. It was in single digits just a few years ago but is now heading toward 20%. And not only is this tax growing more burdensome, but it is completely unsustainable. As the taxable base (traditional interstate telephony) is eroded by new means of communicating, the tax rate will have to grow exponentially or the base will have to be broadened to cover new technologies and services. We should have junked the current carrier-delivered universal service subsidy system years ago and gone with a straight-forward voucher system. A means-tested voucher could have targeted assistance to those who needed it without creating an inefficient, unsustainable hidden tax like we have now. For all the ugly details, I recommend reading all of Jerry Ellig’s research on the issue.

  • Game of Life

    Are you referring to the tax cable companies and phone companies charge us? Because those taxes are out of proportion. At least a tax is based on a percent of money collected. A fee isn’t. Hence, my phone bill with basic service is a few pennies short of what I pay in taxes.

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  • Brett Glass

    I have been advocating for quite some time that the anti-tax Tea Partiers in Congress insist upon the repeal of the regressive USF tax. Now, the FCC has issued a huge, probably illegal order that — if it takes effect before being voided by the courts — would force it to rise even higher. Congress should repeal the tax and implement direct-to-consumer, means tested, voucher-based assistance instead, saving everyone from a huge court battle and continued uncertainty.

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