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FEES v. TAXES: MORE THAN AN ACADEMIC DEBATE
by Jon Coupal, President of the Howard Jarvis Taxpayers Assocation
Among tax experts and policy wonks, there has always been a debate about what constitutes a “fee” as opposed to a “tax.” The general public might have some vague notion of a difference between the two but, more times than not, they just don’t care. If a citizen pays a $10 “fee” for something, that $10 has left his or her wallet just as surely as if they had paid a $10 tax.
However, ever since 1978 with the passage of Proposition 13, the distinction between “fees” and “taxes” has had a significant legal consequence. Certain vote requirements – either in the California Legislature for state taxes or public votes at the local level – are triggered by “taxes” and are rarely triggered by fees. The most important of these requirements at the state level is that a tax increase requires a two-thirds vote of each house of the Legislature, meaning that Republicans can effectively block them. A “fee” increase, however, requires only a simple majority vote meaning that the majority party can impose such revenue increases and fiscal conservatives must rely on a gubernatorial veto.
But now the debate has transcended both the academic and legal arenas and is squarely in the California political arena. Governor Schwarzenegger has repeatedly stated that he will not raise taxes. However, his ambitious spending plan also contains a number of proposed “fee” increases. If these “fees” are viewed as merely taxes in disguise, then the Governor’s shaky credibility with the taxpayer community will take another hit. Fiscally conservative Republicans, already distressed about the huge amount of debt and spending the Governor is seeking, will abandon him in droves if he raises taxes.
So, is the Governor proposing tax increases?
Read the entire column here.