Monday, January 25, 2010

"Fees" Versus Taxes

With the Virginia General Assembly struggling, under the leadership of our new Republican governor, to close a $2 billion budget gap, it's worth considering what constitutes a tax.

Gov. McDonnell has signalled a willingness to raise "fees" to meet the budget gap, but not to raise "taxes." That raises the question of what is a fee and what is a tax.

If the governor proposes putting toll booths on highways to collect revenue, that's not a "fee." It's a tax. A very inefficient and expensive tax, since it requires building toll booths, staffing them, and impeding traffic to collect the tax. A much more efficient--and fairer--way to collect the same revenue would be to raise the gasoline tax. Hey, just call it a gasoline fee!!

Typically, a "fee" is a charge levied by a government for a particular good or service that is unique to the person being charged the fee. Parsing this out is not as easy as it sounds, however.

In Arlington, we pay a fee for water, based on the amount we use; we pay a trash collection fee if we live in a single family home, but it is not based on how much trash we put out. If you take a class at a County facility, you pay a fee for the class; but the County might still subsidize some portion of the class, for example the upkeep of the facility.

A "fee" clearly is not a fee when it is used for some purpose unrelated to how the fee is collected. For example, Gov. Kaine had proposed raising the state's telephone fee, but the money raised would not be used to enhance telephone service in the state--it would go into the general fund. That's a tax.

Republicans like to rail against "taxes," but their arguments are often semantic. Our new governor argues that a down economy is not a good time to raise taxes. That's a good point. But it's also a good point that a down economy is not a good time to reduce services, especially those that assist the victims of a down economy. Nor is it a good time to raise fees.

Furthermore, the largest cost in providing government services is that of personnel. There simply is no way to reduce services in Virginia by $2 billion without firing a LOT of people. Is it a good idea to let a lot of people go when unemployment is so high? Probably not.

When some of our "conservative" friends get going on their anti-tax speeches, we like to ask a simple question: what service of government do you want to reduce or eliminate?

We rarely get an answer, other than some vague claim that the government wastes a lot of money through inefficiency. We've got news for you: the private sector wastes a lot of money through inefficiency, too. We can certainly agree that everyone on both sides of the aisle would like to eliminate fraud, waste and inefficiency, but there isn't as much of that as you think.

People do want most of the services provided by government, and for many services there is a unique constituency that will argue hard for its position. Do you want police protection? Certainly. Fire protection? Yes. Parks? Sure. Garbage collection? Absolutely. Roads? Sewers? Schools? Prisons? Libraries? Courts? We think so.

Lean budget times are useful, because they do force close examination of the various services offered, and offer opportunities to trim fat our of programs and assess priorities. In such times, however, uniform opposition to "raising taxes" is not very useful. Taxes need to reflect the level of services provided, which in turn should reflect a community consensus on those services we want from our government.

If Republicans want to do away with taxes, they can. Just charge a fee for each government service, including an "income fee" for such general services as providing a paid governor.

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