Older Americans Are Being Squeezed for Billions of Dollars in Tax Rip-Offs

In Spotlight: Wasteful Federal USF Phone Tax, State Sales Taxes on Non- prescription Meds, Runaway Local Property-Tax Valuations; Should Senior Taxpayers Have to Pay Taxes to Underwrite Phone Service in Hawaii at $13,500 Per Line?

WASHINGTON, Nov. 2 /PRNewswire/ -- An "urgent wake-up call" was issued today by two groups warning that tens of thousands of American seniors are being forced into financial ruin under the crippling weight of billions of dollars in federal, state and local "tax rip-offs." Among the "anti-senior" taxes highlighted by The Seniors Coalition and the Maryland Taxpayers Association: The widely criticized 9.1 percent federal "Universal Service Fund" long-distance phone tax that fritters away billions of dollars for gold- plated subsidies to rural telephone companies of up to $13,500 for individual phone lines in such places as Maui, Hawaii.

The Seniors Coalition and Maryland Taxpayers Association also outlined their objections to the billions of dollars unfairly charged to older Americans for: non-prescription medication sales taxes imposed by 33 state governments; and skyrocketing property-tax bill increases driven by runaway value assessments that now threaten to force seniors out of their homes (local).

The Seniors Coalition Chairman of the Board Mary M. Martin said: "We are issuing a real wake-up call today: Federal, state and local taxes are driving your parents and grandparents to the brink of financial ruin today. Consider the sorry case of the Universal Service Fund, which is such a costly quagmire of waste and abuse that it makes those sky-high bills we all paid for Pentagon hammers and toilet seats look like a downright bargain! American taxpayers need to insist on reining in the runaway Universal Service Fund, which should only help out those who really need it. The USF should be capped and then reviewed from top to bottom so that taxpayers can hang up on the billions of dollars of waste and fraud going on today."

Maryland Taxpayers Association President Dee Hodges said: "Lawmakers and those who vote them into office owe America's tax-burdened seniors a real apology. At the city and county level in this nation, runaway property taxes are driving thousands of seniors on fixed-incomes out of their homes. Census Bureau data show that property tax collections nationwide grew from $261 billion in 2001 to $352 billion in 2005. That's a 35 percent increase in four years -- double the rate of personal income growth and way over what seniors were getting in terms of increased Social Security. At the state level, an astounding 33 states still charge sales taxes on nonprescription medications that seniors and other Americans depend on. This tax runs completely contrary to the whole intention of making prescription drugs available on an over-the- counter basis in order to control health care costs."

ABOUT THE TAX RIP-OFFS

* UNIVERSAL SERVICE FUND TAX. According to a July 2006 study conducted for The Seniors Coalition by George Mason University Professor of Law and Economics Thomas Hazlett, the "gold-plated" waste and inefficiency under USF is so out of control that taxpayers actually could save at least $1 billion or more each year by simply giving away at full retail cost satellite or cellular phone service to the few remaining Americans who do not currently have access to wireline phone service. The Hazlett study notes that, rather than providing phone-service to low-income consumers in need, the bulk of USF taxpayer dollars are now part of a $3.7 billon wealth-transfer subsidy known as the "High-Cost Fund" that goes from unwary U.S. taxpayers to small, uneconomical private rural telephone companies that often have only a few hundred customers and are so engorged with tax dollars that they can afford to pay out more in dividends to shareholders than they actually charge for phone service.

The Universal Service Fund tax has surged to $7 billion, up from less than $4 billion in 1998. To pay for the Universal Service Fund, the tax rate applied to long distance revenues has skyrocketed five-fold from 2.1 percent to its current level of 9.1 percent. The primary cause of USF increases stem from rising payments to rural phone carriers, labeled "High-Cost Support," where annual payments mushroomed from $1.7 billion in 1998 to $3.7 billion in 2005. These rising expenditures are, in turn, driven by increasingly expensive per-line payments to high cost rural phone carriers and by new payments to wireless phone carriers now qualifying as recipients of such funds.

According to the TSC report, USF should be capped and subjected to rigorous and focused competition. As Professor Hazlett notes: " ... a pro- consumer approach would cap and then reduce USF subsidy payments. Owing to the stark ineffectiveness of current payment schemes, this option could be smartly executed without any loss in universal service outcomes. New technologies and emerging networks allow customers in what were once high-cost areas to be served by modern telecommunications systems at a fraction of the cost of the current regime ... One encouraging sign is that many policy makers, including (Federal Communications Commission) FCC Chairman Kevin Martin, are considering the use of 'reverse auctions' to assign universal service obligations. Here, phone carriers compete to become the 'provider of last resort' in areas where regulators deem local services (without subsidies) insufficient, bidding a price (paid by the government) to supply such services."

The full Hazlett study findings are available online at http://www.senior.org/USFstudy/.

* STATE TAXES ON NONPRESCRIPTION DRUGS. A real concern for seniors and other taxpayers is that of the accessibility and affordability of drugs needed to treat medical conditions. In particular, the cost of medicine is a drain on seniors who are struggling to pay their health care bills. One development that has real potential for reducing the costs of medicines is the process by which drugs are transferred from prescription status to over-the-counter/non- prescription status.

Today, a growing number of conditions can be treated with OTC medicines, rather than with prescription drugs, thus empowering consumers who want to take a more active role in their own health care, and, at least in theory, cut the expenses associated with health care. It is estimated that more than 700 OTC products on the market today use ingredients or dosages available only by prescription 25 years ago. Recent examples here include Claritin(R) (an allergy medicine) and Prilosec OTC(R) (heartburn medicine), both of which recently moved from prescription drug to OTC status.

While the cost savings to consumers of the expanded availability of drugs on an OTC basis are undeniable, those cost savings could be even more substantial if these OTC medicines were exempt from state sales tax as nearly all prescription drugs are, and if the federal government would allow OTC or nonprescription drugs to be included as a deductible expense for taxpayers who itemize their deductions. Under current law, a taxpayer who itemizes income tax deductions may deduct out-of-pocket expenses for medical care that are not paid for by health insurance that exceed 7.5% of their adjusted gross income. The Internal Revenue Code allows the costs of drugs to be included in the deduction, but only prescription drugs and insulin. The code does not allow the deduction for OTC medicines, even those products that previously had prescription status.

At the same time, although virtually every state with a sales tax exempts prescription drugs from that tax, only 11 states and the District of Columbia specifically exempt non-prescription drugs from the sales tax. This disparity in tax treatment is leaving unrealized the tremendous potential for cost savings as a result of the expanded availability of drugs over-the-counter. According to Retirement Living Information Center, the following states still tax nonprescription medications: Alabama, Arizona, Arkansas, California, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Utah, Washington, West Virginia, Wisconsin, and Wyoming.

* LOCAL PROPERTY TAXES. Taxes on land and the buildings on it are the biggest source of revenue for local governments -- the tens of thousands of cities, townships, counties, school districts and other assessing jurisdictions across the United States. U.S. Census Bureau statistics for the period 2001 - 2005 show that property tax collections grew by 35 percent nationwide, double the rate of personal income growth. Given this explosive growth, 10 states have some type of a proposal for property tax limitation on the November 7th ballot, including Arizona, Colorado, Florida, Louisiana, Maine, Nevada, New Jersey, South Carolina, South Dakota and Tennessee, according to the National Taxpayers Union.

Rising property tax valuations are squeezing all homeowners, but are particularly painful for senior citizens, many of whom report they now have less to spend on prescription drugs, home maintenance and food. One Ohio resident said that she has discontinued some of her medications and doctors in order to pay her property taxes. And, because property taxes are taking such a substantial chunk of her fixed income, she has no funds for badly needed home repairs. She wrote in a letter to the Dayton Daily News: "I have been paying property taxes on my home for 41 years ... senior citizens on fixed incomes need a break. Repeal property taxes for them now."

Per 2002 census data, the following five states have the lowest local property taxes per capita/year. They are Arkansas ($191), Alabama ($285), Kentucky ($376), New Mexico ($380), and Oklahoma ($425). The states with the highest local property taxes per capita/year are: New Jersey ($1,871), Connecticut ($1,733), New York ($1,402), and Rhode Island ($1,369).

In addition to the concerns about taxes, The Seniors Coalition also underscored its concerns about the need for senior-friendly adjustments to federal COLA payments. Martin said: "Years ago, Congress enacted legislation that promised Social Security beneficiaries that they would be protected from inflation in the American economy with an annual cost-of-living adjustment, called the Social Security COLA. However, the Bureau of Labor Statistics (BLS) annually uses a flawed formula to calculate that annual COLA, basing it generally on what is called the 'CPI-W' that measures inflation for goods and services typically purchased by a Baby Boomer family of four. More than 20 years ago the BLS was asked by Congress to develop a formula to more accurately reflect the goods and services purchased by seniors. We are still waiting. Using the CPI-W formula to calculate the Social Security COLA is grossly unfair to seniors and robs them of the ability to keep pace with the ravages of inflation on their fixed incomes."

ABOUT THE GROUPS

The Seniors Coalition (http://www.senior.org/) is a non-profit, 501(c)(4), non-partisan, education and issue advocacy organization that represents the interests and concerns of America's senior citizens at both the state and federal levels. Its mission is to protect the quality of life and economic well-being that older Americans have earned while supporting common sense solutions to the challenges of the future. The Coalition was founded as a public advocacy group during the fight to repeal the Medicare Catastrophic Coverage Act in 1989. Since then, it has grown rapidly and expanded our advocacy to include a wide range of other important issues.

The Maryland Taxpayers Association (http://www.mdtaxes.org/) is a 501(c)(4) non-partisan, not-for-profit, volunteer grass-roots organization which asks Maryland elected officials for their pledge not to raise taxes, acts to make Maryland government more efficient, and organizes and chairs the Maryland Center-Right Coalition and the Maryland Leadership Conference.