One temporary tax to lapse; how many left?
Nobel prize-winning economist Milton Friedman said "Nothing is so permanent as a temporary government program."

He might have been talking of temporary tax increases, as well.

If you look at your telephone bill, you'll find that 25 to 33 percent of it is taken up with various government taxes and fees. One of those taxes is the federal excise tax. The U.S. Treasury Department has announced that the tax on long-distance calls will be dropped. Plans for giving out refunds for money collected in the last 3 years are in the works.

As the Detroit News story on the subject notes, "The excise tax was started in 1898 when Congress approved it as a temporary fix to fund the Spanish-American War. It was a one-cent tax on all calls that cost more than 15 cents."

There are several features of the tax that are worth pointing out. The Washington Post's version of the story tells us that the tax "was originally considered a luxury tax because only wealthy people had telephones at the time."

The ever-expanding wealth-generating machine called the American economy put more and more people into the "luxury" status. That's the good news. The rising tide of economic growth lifts all boats. The bad news is that measures meant to punish the wealthy do their own version of trickle-down economics, hitting more and more people over time.

A second thing worth mentioning is temporary problems, such as a particular war or economic downturn, bring about changes that last a long, long time.

Third, the plans of government get overtaken by changes in technology, business methods, and other aspects of life. The Post quotes one advocate: “With advances in telephone technology, cellphones and the Internet … it has become increasingly difficult to determine which party in a call the tax should be assigned to.”

Naturally, the more long-distance calls you made, the higher your tax bill. This means that big businesses rather than average consumers will get the biggest refunds. Expect the soak-the-rich advocates to complain.

(Reprinted from my Detroit News column.) (permalink)