In my opinion anything that comes out of your pocket and goes into government’s coffers is a tax. The SC Policy Council’s take on taxes:
An Excise Tax is Not a User Fee
Excise taxes are fixed duties or charges on a specific type of good independent of the market value of the good. Examples include taxes on a liter of alcohol or a gallon of gas.
So-called “User Fees” are the costs that citizens pay to make use of specific public goods and services. These are voluntary services. Examples include charges to occupy a tent site at a state park or paying to tour a public monument.
South Carolina’s statues are clear:
A “service or user fee means a charge required to be paid in return for a particular government service or program made available to the payer that benefits the payer in some manner different from the members of the general public not paying the fee (6-1-300).
The key point is that user fees are attached to transactions the citizen makes directly and voluntarily with the government.
Some lawmakers have been arguing that excise taxes are a form of user fees. This mischaracterization is based on a failure to understand that user fees can only be collected when someone is directly purchasing a public good, not when tax revenue from a private sale is earmarked by lawmakers for public services. All taxes and fees help finance governmental operations in one manner or another, it is the nature of the taxed transaction that defines the type of levy.
Gasoline taxes are an example. Some of the money from state gasoline taxes is earmarked for highway construction but gasoline is purchased from private suppliers not from the government. Gasoline taxes are not the only source of revenue for highway construction and maintenance. What’s more, individuals who choose not to purchase gasoline may stand to benefit greatly from the existence of a state-subsidized network of roads. A more accurate example of a user fee for roads would be a toll paid to drive on a turnpike that was exclusively funded through toll revenues.
Just as gasoline taxes are often mischaracterized as user fees, so too are the state excise taxes levied on tobacco products. Some lawmakers claim that cigarette tax revenues will be spent on Medicaid, health insurance or placed in some type of medical trust fund. They argue that since the revenues are directed to health care, and smokers often need health care, that cigarette taxes are a type of user fee. This is nonsensical. Tobacco products are manufactured and sold by private companies, not the government. Cigarettes are not a public good. Those smokers who are taxed by the state are not enjoying a special benefit as the result of a targeted fee. Some may go on to seek government financed or subsidized health care, but many will not. Likewise, the vast majority of citizens who receive Medicaid, Medicare, or SCHIPS benefits are not smokers. These individuals are eligible for the same benefits that the smoker is but they have not been asked to pay an excise tax for it.
Policymakers looking to raise taxes on cigarettes and gasoline need to be honest. Increasing excise taxes means raising taxes, not levying a greater user fee. The concept of user fees – which often mean paying twice for a government service – is contentious enough. Mudding the water by further misusing the term is down right deceptive.
Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2008. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201. Visit the Policy Council online at www.scpolicycouncil.com.
South Carolina Policy Council