Fees: The Hidden Tax
Discussion of the recent budget passed by Ohio lawmakers has focused on the temporary 20 percent increase in Ohio’s sales tax. The sales tax increase, however, is not the only way that Ohio policymakers are reaching into taxpayers’ pocketbooks. For example, the new budget contains over 150 new or increased fees that will cost taxpayers over $100 million.If you’re a hunter or a fisherman, you’re going to pay more for your next license. If you’re considering becoming a nurse, a barber, or even a funeral home director, you will be charged a higher rate. Should you decide to run for office, open a gas station, or fly a plane, expect to pay more for the privilege.
Some of these increases appear to be reasonable and seem to reflect the cost of providing the services. After all, the aim of user fees is to charge those using a service or getting a benefit the cost to the public of doing so. The gas tax is a good example of this idea in action. If you drive your car, you should bear more of the costs of maintaining the road.
In general, fees are preferable to broad-based taxes such as the sales or income tax. If everyone were charged a tax to maintain highways regardless of whether they use them, for instance, then non-drivers would subsidize drivers. More people would use the resource, and use it to a greater extent, than may be optimal. The role for policymakers, then, is to set rates for these fees that match the costs associated with their usage.
The issue with the fee increases in this latest budget is that in some cases they have little to do with true costs. For example, funding for the Low Income Housing Trust Fund (a subsidy program for low to moderate income housing) previously came from the general revenue fund. Now, this program will be funded through the doubling of fees for virtually every land transaction.
In these cases, fee increases are being used to relieve pressure on legislators to address issues with the budget as a whole. While the increases in fees are often going toward the agencies that oversee them, this translates into freed-up dollars in the general revenue fund.
Rather than reduce the size of the budget, legislators have shifted the burden of funding increases to a variety of small populations. Ultimately, fees are being combined with a general sales tax increase to pay for an 11 percent increase in Ohio spending.
Ohio is not alone in doing this. States all over the country are passing budgets in the same manner. For the 21 states with budgets already enacted, taxes are $4.3 billion higher and fees have jumped by $2.3 billion. The remaining 29 states are considering $14 billion in new taxes and another $2.4 billion in fees. [1]
Not all states are resorting to this kind of “under the radar” taxation, though. Washington legislators managed to rein the state’s budget in largely through spending cuts and freezes. [2] And, according to an analysis by USA Today, states like Utah, Delaware, Georgia and Hawaii have maintained control of their budgets through better spending-restraint. [3]
The USA Today report states, “By almost any measure, state governments have suffered less than businesses and taxpayers during the economic downturn.” [4] With tax and fee increases, though, citizens are forced to bear the cost of the poor fiscal management of policymakers.
Indeed, when fees are not based on a realistic estimate of the cost of providing the public service the fee amounts to little more than targeted taxation.
Both Republicans and Democrats have come to the same conclusion. Senator Lynn Wachtmann (R – Napoleon) has said flat out that “Fees are taxes.” And House Democratic leader Chris Redfern (D – Catabwa Island) agrees, saying, “Ultimately they’re the same [as taxes], but politically they’re more palatable.” [5]
All tax increases slow economic growth, and given Ohio’s position as one of the most highly taxed states in the nation, that’s something we can’t afford. [6]
Download a list of fee increases in H.B. 95
[1] Robert Tanner, “States levy fees to boost revenues,” The Washington Times, 16 June 2003. Available at: http://www.washingtontimes.com.
[2] David Ammons, “Senate budget deal reached,” Seattle Post-Intelligencer, 2 June 2003. Available at: http://seattlepi.nwsource.com/
[3] Dennis Cauchon, "Economy not to blame for states' budget woes," USA TODAY, 22 June 2003. Available at: http://usatoday.com/
[4] Ibid.
[5] Jim Provance, “Fine print of budget increases many fees,” The Toledo Blade, 25 June 2003. Available at: http://www.toledoblade.com.
[6] Richard K. Vedder, Ph.D., Grinding to a Halt: Ohio’s Tax Policy and its Impact on Economic Growth (Columbus, OH: The Buckeye Institute, September 2002). Available at: http://www.buckeyeinstitute.org.
