IRS Commissioner and Treasury Secretary Talk Up a Tax Cut

Contrary to recent rumors, the IRS isn’t trying to tax employee mobile phones as a benefit. Instead, they’re getting rid of the existing tax — which nobody had bothered to pay.

In other words, cell phones should have been taxed as a benefit, but they weren’t. And now, they won’t be taxed at all. In other words, the law is being adjusted to account for the fact that it’s so often broken.

This is actually a fairly bad precedent to establish. It’s clear that cell phones are a benefit, and that as such it wouldn’t make sense for them not to be taxed. If they were tax free, we’d end up with a situation similar to healthcare: it’s much more economical to buy healthcare through an employer than as a private party. This means that someone who loses their job also loses their access to healthcare. Treating cell phones this way could make things even worse: a newly laid-off employee could lose health insurance and the ability to call new potential employers.

The interesting question is: why wasn’t this law enforced in the first place? According to the Wall Street Journal:

The request is a turnabout from last week, when IRS proposed measures to improve enforcement of the law, which is now widely ignored by employers and employees. One option proposed by IRS would have counted 25% of employee cell phone use as personal, and thus subject to tax as income to the employee.

Their current line is that there won’t be any taxes on cell phones, for employees and employers. It’s certainly cheap to cut a tax that nobody pays, but it’s a bad idea to link phone access to employment. Especially in an uncertain economy, giving people a reason to bet more on a job they’re less likely to keep is a bad policy.

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