Taxation

When the word tax or any related manifestation of the word is mentioned in discussion, it typically makes people cringe and go blank. As consumers every thing we purchase is taxed in one form or another. Many individuals look at their paychecks and question where all their money went for their hard efforts. Common knowledge dictates that it is not a known realization as to where taxes are going. When taxes are withheld from a paycheck, the majority of individuals do not understand all of the particular taxes that are being withheld from their paychecks nor do they know fully understand how those funds are used. My belief is simple; most individuals speculate what happens to the taxes after it is withheld from their checks. There are often many questions about taxes that it can become complicated to explain. Companies are taxed for the goods they produce or manufacture as well. One of the most discussed tax issues is the cellular phone tax. A cellular phone is a commodity that a great number of individuals have become accustomed to having. This dependency may possibly be to blame for the high amount of taxes that consumers and producers are charged for the use and manufacture of cellular phones. In recent years, Telecommunication charges have more than doubled for most states. This tax increase affects things such as supply and demand, and the equilibrium of price and quantity. According to the Tax Foundation, “ In the last decade, the number of U.S. cell phone subscribers has quadrupled, from 55 million in 1997 to over 250 million in 2007. That period has also seen a fall in landline telephones (the number of which dropped to 170 million), and 2007 marked the first year that Americans spent more on cell phones than on landlines.” (Chamberlain, A., (2005)) One of the reasons for this tax increase for many states is because of the decline in the conventional phone taxes because most people use cell phones rather than the conventional land lines. Virginia is one of other states that recently raised the state telecommunication taxes. Their effective general business taxes in 2004 were 4.5% compared to their newly risen effective telecommunication taxes which were 33.77%. (Chamberlain, A., (2005)) According to Bruce Johnson, director of the city's Office of Management and Budget, “ There were about 113,000 residential and business land lines in operation in the city as of July 2004, a drop from more than 120,000 two years earlier.” (Chamberlain, A., (2005)) The producers do not receive nearly the same tax reactions as that of the consumers. In the Virginia example, residents were paying an additional $3.00 per month for their cellular phone service. The statistics presented are from the year of 2006. Some of the effects of this taxation on cellular phone usage are the possibility of rising tax evasion and black Market activity. Although the increased taxes are viewed as form of raising state revenue, it would not do so without possible negative future effects. The article, Are Cell Phone Taxes Good Tax Policy' by Andrew Chamberlain discusses the principle of the tax policy which is neutrality. Being neutral with taxes is essential; however it is notable that there is not a neutral position when comparing cellular phone usage taxes to general business taxes. These taxes affect supply and demand because of this. Even though most people will not stop purchasing cellular phones because of the taxes they are charged, if prices continue to increase to contemptible heights in the future, the demand for cellular phones could fall which would create a negative effect on the economy. In terms of the equilibrium price and quantity, Andrew Chamberlain continues, “Since the essential function of taxes is to raise revenue—and not micromanage market outcomes with subsidies and penalties—taxes should aim for neutrality in economic decision making, and minimize distortions in the marketplace.” (Chamberlain, A., (2005)) But it is quite clear that most of the state and local cellular phone taxes are highly non-neutral because the taxes for telecommunications services have much higher rates than other general business activity. “A bipartisan bill introduced Tuesday in the House of Representatives would ban new state or local taxes on mobile phone services for a period of five years. Sponsored by Rep. Zoe Lofgren (D-Calif.) and five co-sponsors, the bill is known as the Cell Tax Fairness Act. (HR 5793)…The Cell Tax Fairness Act will help ensure that consumers make choices about communications technology based on the merits of that technology, rather than on the rate of taxation." (German, K., (2008)) This proposed bill has a term of five years and would freeze cell phone taxes during the five years. Although local tax increases may take place, cell phone taxes in particular, cannot be singled out. Taxes need to be regulated in a better manner. Cell phones are not the only consumer products that is to have a tax ceiling. By implementing a price ceiling for cell phones would not only be sensible, but would in turn increase the markets’ productivity and profitability, this in turn would reduce the loss of potential producers and consumers. References German, K., (2008, April 16). House Bill Aims to Ban New Cell Phone Taxes. news.cnet.com. http://news.cnet.com/8301-10784_3-9920387-7.html Chamberlain, A., (2005, June 16). Are Cell Phone Taxes Good Tax Policy' taxfoundation.org. http://www.taxfoundation.org/blog/show/548.html