User Fees and Taxes: What's the Difference?

Politicians and bureaucrats are notorious for manufacturing euphemisms--clever but deceptive substitutes for what they really mean but don't want to admit. That's how the phrase "revenue enhancement" entered the vocabulary--from our courageous friends in government who can't bring themselves to say "tax hike."

Right now in Lansing, there's a bipartisan effort to increase so-called "user fees." Millions of dollars in additional state revenues have been proposed by the governor, legislators, and the bureaucracy under the "user fee" label.

Sometimes, a user fee is indeed a user fee. But other times it's not that at all; instead, it's a tax hike disguised by a misnomer.

When someone chooses to use a government service and must pay for it, he's paying a user fee. Furthermore, what he pays should cover the cost of the service he's receiving; if it also pays for something he isn't getting or doesn't want, then he's paying both a user fee and a tax. Taxes differ from user fees in that paying them isn't a matter of choice and what you pay is not tied to what you get.

In principle, true user fees make a lot of sense. If you use a service, you pay for it. You don't pay if you don't use. Most people understand--and support--user fees for such things as toll roads, harbors and waterways, and even certain parks and recreational facilities. Each person has to make a rational economic decision: Is this service really worth the price or should I choose a more economical option?

One proposal, to raise by $3 to a total of $13 the cost of obtaining a birth certificate, probably qualifies--but many others do not.

Boosting the charge employers must pay to settle a workers' compensation case is a tax hike, not a user fee. Authorizing the Civil Rights Department to charge the firms that it investigates likewise means a tax hike, not a user fee. Other deceptions of the same order include a special assessment on insurance premiums to fund certain Insurance Bureau operations, higher charges for dry cleaning inspections, and an increase in the mandatory "fee" for child care licenses.

Another proposal which has already passed the Senate would increase the charge that parents pay for tests on newborn babies from $22 to $25 for the purpose of testing every Michigan newborn for congenital adrenal hyperplasia, a genetic disorder that afflicts between 12 and 15 babies statewide each year. Because this test would be mandated, the $3 charge flunks the choice criterion for being a user fee. However well intentioned, it's a tax.

Former Gov. Blanchard's Fire Safety Task Force recently issued a report to Gov. Engler. It's loaded with recommendations for more public sector spending and mandates, including an ill-advised proposal for municipalities to get into the fire insurance business. The various "fees" the task force suggests are so obviously "taxes" that at least the report left out the deceptive adjective "user" in many cases.

The Engler administration promised no new taxes. It shouldn't go back on that obligation by embracing taxes misnamed as user fees. The legislature and the bureaucracy--ever eager to dig deeper into other people's pockets--shouldn't be allowed to get away with this pretense either.

A tax by any other name is still a tax, and not something that's needed in a weak economy in an already over-taxed state.