Do taxpayers pay for free government cell phones?

There seems to be an ongoing controversy as to whether or not the “phones for the poor” programs by Safelink Wireless, ReachOut Wireless and Assurance Wireless are paid for by U.S. taxpayer dollars. We are going to set the record straight.

Yes and no.

How’s that for clarity? The confusion arises because it depends upon whether or not you think a mandated fee tacked on to the phone bills of virtually almost every American is a tax or not. Some say it is, and some say it isn’t.

Federal Law requires telecom companies to contribute to the Universal Service Fund (USF), which in turn pays for the free cell phones program, in addition to funding telecommunications services (including high-speed Internet access) for eligible schools, libraries and rural health care providers.

A law of economics is that any tax on a corporation always results in the tax being paid by the consumer — taxes are always passed on. And this is the case with the telecom companies “contribution” to the USF. These companies collect the money from everyone that pays for phone service by tacking on a few cents to every phone bill. It’s listed on those bills as the Universal Service Fund.

To put it simply, the U.S. Federal government has mandated that every phone bill include this charge. And the charge, in part, pays companies who provide free cell phones for the poor — like Safelink, Assurance, and ReachOut — for each customer they sign up — some money for the phone and then an amount for each month of service.

Some consider a federally government mandated fee that funds government programs a tax, and some consider it a fee. We think the answer depends upon which side of the politically-charge government phone giveaway you are on.

What do we think? To be honest, to us a tax and a federally mandated fee are one and the same — so call it whichever you which. But that doesn’t mean we don’t think this is a valuable program for those in need. It is.

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Comments

  1. Pat says

    Just received my Verizon bill for phone/internet/TV and there is $11.38 in federal taxes on it, but I don’t see a Universal Service Fund listed. There is 23 cents federal tax; $1.00 Access Recovery Charge; $6.50 for Federal Subscriber Line Charge; $1.25 Federal Use and $2.40 FTR Long Distance Charge. So which of these pay for those free cell phones for everyone who applies for one (or two or three?) When you add the state and local taxes, it adds $26.87 a month to the bill….

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