EYE ON THE PIE: Let's tax phone, Internet, TV usage

May 29, 2006

Felicity Futenmouth and I went to graduate school together. Her career in economics focused on consumer services provided by such first-class firms as MegaMedia, MegaMarkets and MegaMercenaries. We became reacquainted lately at our class's 35th reunion.

Over a nightcap of hot chocolate and biscuits, she enticed me with a coy question: "How do you feel about local taxes?"

"I am all for them," I responded. "If you don't have local taxes, you don't have a strong claim on the responsibility of local government officials. When the state becomes the leading source of funds for K-12 education, as it has in Indiana, the local school board will be responsive to the demands of the Legislature rather than of those of the local electorate."

"But where are local governments going to get money, if not from the state?" she said, holding her chin high to reduce the wrinkles in her neck. "They have exhausted the property tax. They have learned that only small differences in sales taxes are reasonable among competing jurisdictions. Many have gone as far as the states will allow them on the income tax. It is a bleak prospect."

"Remember our public finance class?" I said.

"Oh, yes, old Horace Hoary," she smirked.

"Right," I said, ignoring the levity. "He emphasized that people do not like to pay taxes unless they can personalize the benefits. Parents are willing to pay for education. All citizens will pay taxes for streetlights that make them feel safer. But voters may revolt over paying taxes for a sports stadium when they do not identify with the team. Horace preached that, where possible, government should charge fees that can be based on some identifiable units of consumption.

"That's devious," Felicity sighed, a small moustache of chocolate on her quivering upper lip.

"A good corporate economist like you could justify it, if you worked for government," I said. "All we have to do is tie the tax to behavior we don't approve openly, while keeping the rate low enough that we will not reduce the behavior being taxed."

Blushing, she stammered, "Are you talking about intimate relations?"

"No," I said. "Communications. We could see local taxes on minutes of telephone usage. The government has proven it knows every minute we are on the phone. It knows where we are when we make the call. It can track us from place to place. There is no technological reason that we could not be taxed for the calls we make.

"Rural areas with interstate highways would benefit greatly from all that traffic which today provides little cash benefit to them. The fees might help pay for the emergency services necessary for accidents caused by cell phone users in autos. And we wouldn't mind. We'd see someone phoning from a car in motion and we'd celebrate the fact that the person was paying for that phone usage.

"Today, many people pay for a block of service and nothing for their 'extra' telephone minutes. They get plans that allow them enough minutes that there is no extra fee for going over some artificial limit. The industry itself recognizes no marginal cost in its pricing."

Felicity beamed, clearly on a sugar high.

"We'd make the taxes the same for individuals and businesses. We could even have taxes on minutes watching TV, if we have the technology. We certainly could tax minutes on the Internet," she said.

As an act of kindness I escorted her to the elevator.

"Maybe," she slurred, "thumbday we could tax what you read in the newthpaper."

It is sad that some economists cannot hold their hot chocolate.

Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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