Originally created 08/05/98

House GOP tax lawmakers question legality of charges for cheap Internet hookups



WASHINGTON -- Charges on telephone bills to pay for cheap Internet hookups for schools and libraries could constitute an illegal tax, casting additional uncertainty over the politically touchy program, according to some of the House's top tax lawmakers.

The House Ways and Means Committee's oversight subcommittee held a hearing Tuesday on the matter, which is before a federal appeals court in New Orleans.

If the court rules that the charges are an unconstitutional tax, as telecommunications companies have argued, the Internet program's financing would be thrown into chaos. The Internet program is paid for by fees the Federal Communications Commission imposes on telecommunications companies, which pass them on to customers.

"At first blush, I must admit that the charges that the FCC has imposed on telecommunications carriers appear to be taxes," said the panel's chairwoman, Rep. Nancy Johnson, R-Conn. Only Congress -- not the FCC -- has the power to levy taxes, she added.

The FCC's general counsel, Christopher Wright, argued that the program's financing "does not constitute an unconstitutional tax" and is "fully consistent" with the 1996 telecommunications law that created the program. Wright said the courts have upheld similar fees imposed on telecommunications companies and passed along to their customers.

But one of the FCC's five commissioners, Harold Furchtgott-Roth, disagreed, saying, "I fear that this program is an illegal tax." He voted against the current way of paying for the program.

Johnson said a tax is a mandatory charge imposed on people and companies for general or specified governmental purposes. A fee, on the other hand, is a voluntary payment for a benefit conferred on the person or company paying it and the fee amount correlates with the benefit received, she said. For instance, campers often pay a fee to enter national parks and the total fee is designed to approximate the cost of running the park, she said.

Government agencies can impose fees, but only Congress can levy taxes, she said.

Opponents call the Internet charges "the Gore tax," referring to the vice president's support of an administration goal of wiring the nation's schools by 2000.

Reps. Billy Tauzin, R-La., and Jerry Weller, R-Ill., meanwhile, pitched subcommittee members on their plan to finance the Internet program.

Instead of assessing charges on telecommunications carriers, the Tauzin-Weller bill would pay for the Internet program by using 1 percent of a long-standing 3 percent federal excise tax on telephone service. The rest of the excise tax would be repealed.

Johnson and other members of the subcommittee expressed interest in the proposal.

The Tauzin-Weller plan -- which would sunset in five years -- would raise $1.7 billion for the Internet program in its first and second years, $1.8 billion in its third, $2 billion in the fourth and $2.1 billion in the fifth, Tauzin said.

In response to political and public criticism over the program, the FCC recently cut the amount of money to be spent for the Internet hookups by nearly half for this year -- to $1.275 billion. No money has been disbursed.

The Tauzin-Weller bill also would distribute the money to states in the form of federal block grants, rather than through the FCC. Tauzin said the states can best assess the needs of their schools and libraries.