Users Fees

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Examples of Users Fees

State and local governments typically derive a significant proportion of their revenues from users fees, which are fees charged by the government for a particular service or benefit. Examples include:

  • Trash collection charges.
  • Water and sewer bills.
  • Postage and post office box fees.
  • Zoning application fees.
  • Medicare premiums.
  • Hunting and fishing license fees.
  • Charges to customers at state owned liquor stores.
  • Bus Fares.
  • Charges to patients at public hospitals.
  • School activity fees.
  • School lunch charges.
  • Special property tax assessments to property owners for a very local benefit such as paved alleyways on their own block.
  • Court filing fees.
  • County clerk and recorder filing fees.
  • Marriage license charges.
  • Corporate formation fees and annual registration fees.
  • Radio frequency auction proceeds.
  • Road tolls.

Some of these charges are quasi-commercial in nature, others amount to targetted taxes (which can in some cases be waived for the indigent). Some are paid into special funds which may be used only for the purpose for which they were collected, others go into a general funds with no guarantee that the funds will not be diverted to other uses. In a few states, such as Delaware, which is known for its desirability as legal place of incorporation for publically held companies, users fees can provide a substitute for significant state taxation to provide services to local residents.

It isn't always clear whether a charge is an excise tax or a users fee. For example, gasoline taxes go into a special fund used exclusively for highway improvement, and gasoline useage is a good approximation of highway use and impact. Is the gas tax an undesirable regressive tax, or a sensible users fee that matches cost to the person who incurrs the costs in an economically rational way?

Progressivity and the Special Case of Social Security

The progressive v. regressive analysis breaks down to some extent in this area because a fair analysis of the situation requires a reconcilling of the benefit received to the charge paid. For example, is a 50 cent reduced lunch charge for a school lunch paid only by working class students a regressive tax, since it is paid only by the poor, or is it a subsidy to the poor (since the market price for the lunch might be $2-$3), or both. Services provided at cost (such as many public water systems) are arguably neither progressive or regressive. Still, in some cases, where the benefit involves little or no cost for government to provide (like a marriage license) a users fee can be considered a form of tax.

Part of the difficulty of assessing the Social Security system arises from the same connundrum. On one hand, the payroll tax which pays for social security benefits is clearly regressive, taken alone. But, taxes paid are related to some extent to benefits ultimately received from the system, and the poor and working class participants in the social security system generally receive proportionately more benefits in return for the taxes they paid into the system, than the more affluent do. In other words, if the Social Security system as a whole were abolished, most affluent taxpayers would find themselves economically better off, while many less affluent taxpayers would find themselves less well off, and many taxpayers in the lower middle range would be indifferent to the change economically.

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