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Feds Disconnect Excise Tax on Phones

The next time lawmakers promise that a tax is only temporary, remember the federal excise tax.

Thursday, U.S. Treasury Secretary John Snow announced that the IRS would issue refunds of excise taxes on long-distance service for the past three years.

Short on cash to finance the Spanish-American War in 1898, Congress targeted the then new technology of telephony for some quick battle funds. It was only temporary, Congress insisted.

The war ended at a cost of $6 billion, but the excise tax lived on to become a staple of telephone taxes, which is currently a 3 percent charge on all local and long-distance services.

Since the enactment of the excise tax, Americans have shelled out $300 billion for the program.

Enough is enough, Snow said.

"Today is a good day for American taxpayers; it marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose and by now should have been ancient history," Snow said in a statement.

In addition, Snow said Congress should eliminate the excise tax on local phone services, which is a notion, in an election year, likely to win passage.

"It's time to 'disconnect' this tax and put it on the permanent 'do not call' list," Snow said.

Refunds will be a part of 2006 tax returns filed in 2007, and Snow said the IRS is working on a simplified method for individuals to use.

"President Ronald Reagan often said, 'the nearest thing to eternal life we will ever see on this earth is a government program.' Certainly, nearly 108 years after the end of the Spanish-American War, we have tested the upper limits of these words," Sen. John Sununu (R-N.H.), said in a statement.

Sen. George Allen (R-Va.), who is sponsoring legislation to prohibit the extension of excise taxes to Internet connections and co-sponsoring a bill to eliminate the excise tax entirely, also praised Snow's action.

"I am glad to see that the Department of Treasury will no longer continue to burden the American tax payers with this outdated, unnecessary strain on their wallets," he said in a statement. "I will continue to support the termination of the federal excise tax on all communications services."

According to Allen, he decided to pursue the legislation when the Congressional Joint Committee on Taxation inquired in January last year as to whether the excise tax should be applied to all Internet communications, including e-mail, VoIP, Internet video conferencing and other data traffic.