A report compiled by the Congressional Budget Office (CBO) suggests the elimination of telephone excise and universal service fund (USF) taxes. According to the CBO, these levies distort choice by causing consumers to base their spending decisions “more on the services’ relative tax rates than on their relative costs and benefits.” The report delivered to the House and Senate budget committees last week, features a list of budget options that are intended “to help inform members of Congress about the effects that various policy choices would have on spending or revenues.” In all, the report contains 188 such options, including those pertaining to telephone excise and USF taxes, that CBO officials characterize as suggestions rather than recommendations. Although the Internal Revenue Service stopped collecting excise taxes two years ago on long distance phone services, local exchange services remain subject to that tax. Declaring that “the main rationale for eliminating [excise and USF] taxes is that they have negative effects on the allocation of telecommunications services,” the CBO said that low-income households tend to be hit disproportionally by these taxes as more prosperous households with access to PCs and other high-end devices are subscribing in increasing numbers to Internet telephony and other new services that are not subject to these taxes. Although the elimination of excise taxes would reduce federal budget revenues by $800 million through 2014, the CBO predicted that corresponding increases in income and payroll tax revenues resulting from such a move would help counteract that shortfall. With respect to a reduction in USF fees that could slash budget revenues by $44.5 billion over the next five years, the CBO maintained: “lawmakers could chose to reduce spending on programs funded by the USF and thus offset some of the lost revenue.”