Tags: GDP | tax | cell phone | Internet

9 Cents a Week Adds Up to 20 Percent Drop in GDP Growth

Wednesday, 21 Aug 2013 07:33 AM

By Michael Carr

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In the latest end run around Congress, the Obama administration is considering a new fee on cell phones to fund Internet access for schools. The average user would pay about 40 cents a month for children to surf the web from schools across America.

There are at least 325 million cell phones in the United States. Total fees under this proposal would raise $1.5 billion a year.

This small fee is yet another tax on the economy; a tax that one of President Obama’s former chief economists has shown can slow economic growth.

Christina Romer, a former chair of the Council of Economic Advisers who is considered by some to be a candidate to replace Federal Reserve Chairman Ben Bernanke, has published a study that shows tax increases equal to 1 percent of gross domestic product (GDP) lower GDP by almost 3 percent.

A small tax of only 40 cents a month could reduce GDP growth by 0.3 percent in a $15 trillion economy.

Economists surveyed by the Federal Reserve Bank of Philadelphia expect GDP to grow by 1.5 percent in 2013. Therefore, the new tax on cell phones would reduce GDP growth by 20 percent.

Tax policies require debate about their benefits and drawbacks. Congress has traditionally been home to those debates. Raising fees on cell phones to fund local responsibilities should be debated rather than imposed through a regulatory process.

Investors should be aware of increases in regulatory fees and understand their impacts on the economy and company earnings. If small increases become a trend, the stock market could suffer.

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