For the past few years, the chairman of the Federal Communications Commission, Kevin Martin, has proposed replacing the complex tax for the federal Universal Service Fund with a simple fee. Last week, the League of United Latin American Citizens, the Latino Issues Forum, and Consumer Action issued another in a series of attacks on the proposal. The three groups are part of a larger coalition known as “Keep USF Fair,” which is supported by organizations such as the National Education Association and the NAACP. Keep USF Fair supports the current funding mechanism for USF – which is anything but fair.

Telephone bills list many government-imposed fees and taxes. The legal distinction between fees and taxes is important. A fee is an assessment in direct exchange for a government-provided service, and covers just the cost of providing the service. In contrast, a tax is a payment for general purposes, not in exchange for a specific service.

On telephone bills, the federal government collects 3% of interstate revenues, which totals billions of dollars, as an “excise tax” instituted during the Spanish-American War. Many carriers also have an “E-911” fee, a fixed fee to defray the cost of E-911 services through local public safety providers.

The federal government collects another 10.2% of total interstate revenues for the federal USF. The USF is designed to ensure service to certain consumers, including low-income households, consumers in rural and high-cost areas, schools, and libraries. The program enables consumers to have access to users who might otherwise not be on the network. This year, Americans will pay about $7 billion in USF fees.

Before 1996 USF consisted of programs for small rural telephone companies and low-income households that together amounted to less than $3 billion annually. The first fee structure in 1998 was less than 4% of interstate revenue. But universal service has grown to cover a wide range of new programs, some not likely envisioned in statute. With new programs and dwindling interstate revenues, the USF fee has nearly tripled in eight years. USF funding requires ever higher fees, an unsustainable situation.

The current funding mechanism for USF, for several reasons, needs fixing. As the size of USF increases and interstate revenues dwindle, the fee structure spirals out of control. A percentage-of-revenue tax is just a euphemism for the government discouraging businesses from collecting revenues, and ultimately discouraging consumers from using the telecom services that generated the tax revenues. Perversely, the current USF fee structure discourages consumers from using interstate telecommunications services, directly opposing the purpose of the interstate commerce clause of the Constitution.

Further, the current USF fee structure is vulnerable to a legal attack that it is more of a tax than a fee. Only Congress, not the FCC, can set taxes. A few years ago, one federal court explained why the USF fee looked rather like a tax, but ultimately deferred to the FCC. A different federal court might not be as deferential.

An irresponsible FCC chairman would leave the USF program alone to die of chaos, with rates spiraling out of control, leading a federal court to put the program out of its misery permanently.

Mr. Martin has suggested a more elegant solution: replacing the tax with a simple fee based on telephone numbers. A monthly fee in the range of $1 per phone number in use would raise enough revenue to fund universal service. A lower charge applied to all telephone numbers, even those not currently in use, also could raise enough. A numbers-based fee would not discourage incremental usage of the telephone network. Once a consumer has a number, there would be no additional charge.

The FCC has a simple choice: Follow the unsustainable advice of Keep USF Fair or follow the sound approach of Mr. Martin.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.