One reason is taxes. The typical cell-phone user pays an FCC tax, a couple of state taxes, a 9-1-1 charge, and a couple other charges. Those tax bills can add up: in New York City the average burden is over 20%!
And it’s not like people have a lot of choice about paying them. Sure, you can monitor your usage and choose plans, but for many people cell phones are an essential part of doing business—like having a driver’s license or using a computer.
What we seem to have here is a tragedy of the anti-commons: lots of small, overlapping tax jurisdictions taking a small slice of an overlapping pie, with no central authority tasked with the charge to minimize charges. That’s up to the individual. And the monthly bill is so confusing that consumers are lucky if they get the right payment to the right address, much less figure out who’s billing which usage fee or status charge.
The same kind of overlapping tax burden can be seen in with rental cars, hotel rooms, and other services. Often the expense is borne by the business, which passes it on to the consumer via a regulatory charge or service fee.
The tragedy is that all these overlapping fees are likely high enough that they actually reduce the underlying activity. That is, some people just say the heck with it, it’s too expensive to rent a car or or use a cell phone. They never use the underlying service, and the economy misses out. Economists call this a “deadweight loss.”
Congress could invoke the commercial clause and simplify things, but don’t plan on it—the Feds are short of cash, too. Instead it’s up to each of us to read our bills, watch our usage, and plan our lives.
Douglas R. Tengdin, CFA
Chief Investment Officer
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