President Obama’s fiscal year 2015 budget proposes to increase taxes on individuals by over $820 billion and on businesses by about $500 billion, for a total of over $1.3 trillion in new taxes over the next ten years....
- The Tax Policy Blog
- Setting the Record Straight on “Fees”
Setting the Record Straight on “Fees”
The House Committee on Budget released yesterday a brief FAQ “setting the record straight” on the recent bipartisan budget agreement. While the agreement raises no new taxes, it does raise fees of various sorts – for example, airport security fees and PBGC pension insurance premiums. The FAQ takes great care to assert that their fees are not, in fact, tax hikes in disguise.
Is the House Budget Committee right? Well, sort of. The committee’s explanation of the issue is very good – when government services are done only for a small group of people, it is usually bad policy to charge everyone for those services. This is where fees have a place in public policy. For example, it costs money to mail a package through the US Postal Service. The fact that the government provides a service does not mean it must necessarily provide it for free.
It’s easy to understand why security screenings and pension insurance should not be free. It is distortionary and unnecessary – and probably unfair – to deliver free services to those Americans lucky enough to fly or to have pension plans, just as it would be silly to deliver everyone’s packages around for free. These seem like good places to have fees for services.
But the critics have a point. Congress has played fast and loose with the definition of fees, and their fees have become very tax-like in intent. The “fees” adjusted in the budget agreement aren’t very clearly tied to the service they’re charged for. As the committee says, the fees aren’t commensurate in value to the service provided – and what’s more, they are used in the deal to “pay for” things in the general budget that might be completely unrelated to the service provided.
We outlined the difference between taxes and fees in a background paper earlier this year. A tax’s primary purpose is raising revenue, and a fee’s primary purpose is to charge people for services rendered to them. Given these understandings of what the words mean, critics have reasonable grounds to claim that in spirit, the deal still raises taxes.
Buy this blogger a cup of coffee!
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.