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Stick It to the Tax Man: Adopt User Fees

By: Nick Zaiac - @NickZaiac - Apr 15, 2014, 2:56 pm

Every year on April 15, the free-market blogosphere erupts into a storm of tax outrage — and rightly so. The tax code, with its thousands of pages of rules and complicated forms, deserves almost all of the criticism. The rates are too high, yet not high enough to cover the nation’s deficit. The number of different rules, deductions, and credits baffles all but skilled accountants. The amount of time spent simply doing taxes costs taxpayers millions of hours which could be put to better use. US citizens abroad are finding it increasingly necessary to  give up their citizenship to avoid the United States’ worldwide taxation of income. All of these are important issues to consider.

Source: Internal Revenue Service
Source: Internal Revenue Service

What is often ignored is the idea of shifting some public finance away from taxpayer funding and toward a user fee model. Under such a model, specific programs are paid for via collections from the people who actually use the services. The most obvious example in the current system is roadways. Gasoline taxes are paid into the Highway Trust Fund, which then uses these revenues to pay for the infrastructure that drivers use. This is by no means a perfect example of user fees, as gasoline use is an indirect measure of road use. Funds are siphoned off for mass transit, and roads are used by people in electric cars, cyclists, and pedestrians. Despite these quirks, paying for infrastructure via gas taxes is a far better model than simply having the taxpayers at large pay for roads they may or may not ever use.

By moving toward a model of user fees, the government has less leeway to expand in size and scope than in a system where taxes pay for all services. Those who pay such fees have strong incentives to ensure that the money is being spent wisely. Moreover, by keeping a larger share of revenues locked into specific projects, the government cannot use the funds for new projects and programs at its own discretion. Even better, moving more programs to user fee models can help prove that certain areas of the economy traditionally provided by government, such as parks, canals, and airports, can be provided by the private sector. Not everything is easy to charge user fees for, but for any area where fees are viable, they should absolutely be implemented as a substitute or supplement for tax dollars.

While, ideally, we should hope to get the government out of many areas of society, funding projects with fees from those who use them would be a major step toward a more free society.

Nick Zaiac Nick Zaiac

Nick Zaiac is a public-policy researcher in Washington, DC. He also serves as a policy analyst at the Maryland Public Policy Institute. His column, The DC Leviathan focuses on the often-ignored bureaucratic agencies, from the Department of the Interior to the General Services Administration. He has been published in the Baltimore Sun, City AM, CapX, and other outlets. Follow @NickZaiac.