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AT&T’s Text Messaging Plans Are a Regressive Tax

The unexpected connection between carrier pricing schemes and payday loans.

The most active senders and receivers of texts are nonwhite, earn incomes below $30,000, and do not have a high school education, says a 2011 study conducted by the Pew Research Center’s Internet & American Life Project.

AT&T, to use but one example, charged $1,310 per megabyte to send text messages in 2008. In 2011, the company effectively doubled that amount. And that’s assuming you’re even on a monthly plan. Most low-income users are almost certainly on prepaid devices, where fees for text messages are even higher.

Yet it costs the carrier virtually nothing to handle text messages. This raises an obvious question.

Are text messages a regressive tax on the poor that helps subsidize cell service for the rest of us?

A regressive tax is any levy that hits the poor disproportionately. This can be accomplished through a tax that is levied the same on everyone, such as a gasoline or cigarette tax. But there is a more insidious form.

Imagine something worse than a flat or sales tax—a tax that actually goes up as your income decreases.

Considering that users who can afford data plans have access to email and countless free text messaging services, it seems clear that one reason low-income cell phone users rely on texts is that they can’t afford data plans or, for that matter, smart phones.

Given the option to eat up minutes on plans that are almost certainly prepaid, the rational economic calculus is to send a text message instead.

But that means that carriers’ text messaging plans are the communications equivalent of payday check cashing and loan services, subprime loans, rent-to-own stores and the countless other schemes designed to fleece the poor by taking advantage of their lack of working capital.

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