In the spring of 1898, a young Theodore Roosevelt had resigned his post as Assistant Secretary of the Navy and set about the task of recruiting volunteers for the 1st U.S. Volunteer Cavalry Regiment, a crew more familiarly known as “Rough Riders.” They, and he, would become famous for a heroic fight to free Cuba from rule by the Spanish.
Meanwhile, the Congress of a United States newly emerging as a world power had to find a way to fund the Spanish-American War. The solution presented itself in an obscure, relatively new invention: the telephone. Like most new inventions, the telephone was then little more than an expensive toy owned only by the wealthy. To impose a temporary luxury tax on the device would infuriate few Americans, and so was born the federal excise tax on telecommunications, a flat, three-percent tax that is still applied to every phone in America in 2006.
To be fair, Congress did in fact repeal the tax following the war, but it is a political axiom that such a thing as a temporary tax does not exist, and by the outbreak of World War One, the tax had been restored. This cycle continued throughout most of the 20th century, with the tax reaching as high as ten percent during the Vietnam War, until Congress codified the federal excise tax in 1990.
The “Spanish-American War tax,” like its younger cousin, the estate tax, has become a permanent section of the tax code, affecting Americans rich and poor, despite the promised discrimination against the wealthy and supposed short life span. Worse, the tax now funds no specific purpose, instead going into general revenue for the government to waste as it pleases.
Fortunately, there’s hope that the last vestige of the 1898 war effort may soon disappear.
In May of this year, the Treasury Department announced it would no longer collect the tax on long distance calls, after losing eleven consecutive cases in five federal circuit courts, all of which declared the tax (as applied to long distance) illegal. While this is an unquestioned victory for taxpayers, much of the tax remains in place. The congressional Joint Committee on Taxation estimates that of the $4.2 billion the tax brings in annually, eliminating the long distance portion will only reduce that revenue by about $700 million a year, leaving roughly $3.5 billion of the tax on the backs of individuals and businesses.
Congress must step in to repeal the tax entirely. In June, the Senate Finance Committee favorably reported S. 1321, the Federal Excise Tax Repeal Act, sponsored by Sen. Rick Santorum (R.-Pa. to the Senate floor. However, the Constitution requires that tax measures originate in the House of Representatives, so S. 1321 enters a holding pattern until the House acts. H.R. 1898, sponsored by Rep. Gary Miller (R.-Calif.) recently gained its 218th cosponsor, giving it the stated support of a majority of the House. However, the House Ways and Means Committee, chaired by Rep. Bill Thomas (R.-Calif.), has yet to act.
Congress now enters the month long August recess in a hotly contested election year. Realistically, this leaves only the month of September to legislate in the 109th Congress. Particularly this year, voters are looking for a record of accomplishment that justifies keeping a Republican majority for two more years. Repealing the Spanish-American War tax is easily explained, is long overdue, and will make sense to most voters.
When Congress returns from August recess, the House Ways & Means Committee should promptly approve H.R. 1898, and either the House or Senate bill should reach President Bush’s desk by the end of September.
The Spanish-American War tax is antiquated, unpopular and unfair, and should have been permanently repealed decades ago. Republicans are entering a tough election year where their majority is in question, and they need to be able to tell voters about real, common sense accomplishments under their watch. Repealing the Spanish-American War tax this year achieves both goals. Good policy is good politics, and perhaps this year, Americans will finally stop paying for the Spanish-American War.