Impose Fees to Cover the Cost of Government Regulations and Charge for Services Provided to the Private Sector

Federal law imposes regulations on individuals and businesses to ensure the health and safety of the public and to facilitate commerce. The federal government also provides the private sector with a wide array of services and allows the use of public assets that have economic value, such as navigable waterways and grazing land. This volume includes a number of budget options that would raise substantial amounts of income by imposing fees on users of certain services or otherwise charging for those services. For example, Option 17 would increase the fees that cover the cost of aviation security, generating $11 billion from 2015 through 2023. A number of other fees or taxes that would raise smaller amounts could be imposed either to cover the cost to the government of administering regulations or to ensure that the government is compensated for the value of services provided to the private sector. Those fees could be applied across a wide array of federal agencies and through a variety of programs.

This option encompasses an illustrative group of relatively small fees and taxes that could be implemented individually. However, if all were put in place, they could increase income to the government by $21 billion from 2015 through 2023 by doing the following:

• Increasing fees for permits issued by the Army Corps of Engineers ($0.6 billion),
• Setting grazing fees for federal lands on the basis of the state-determined formulas used to set grazing fees for state-owned lands ($0.1 billion),
• Imposing fees on users of the St. Lawrence Seaway ($0.3 billion),
• Increasing fees for the use of the inland waterway system ($4.3 billion),
• Imposing fees that recover the costs of registering pesticides and new chemicals ($0.4 billion),
• Charging fees to offset the cost of federal rail-safety activities ($1.7 billion),
• Charging transaction fees to fund the Commodity Futures Trading Commission ($2.2 billion),
• Assessing new fees to cover the costs for the Food and Drug Administration to review advertising and promotional materials for prescription drugs and biological products ($0.2 billion), and
• Collecting new fees for activities of the Food Safety and Inspection Service ($11.2 billion).

Depending on the way the legislation was written, the fees included in this option could be recorded as revenues or as collections that would then be subtracted from either discretionary or mandatory spending. Several of the specific fees listed in this option would typically be classified as revenues, consistent with the guidance provided by the 1967 President’s Commission on Budget Concepts. That guidance indicates that receipts from a fee that is imposed under the federal government’s sovereign power to assess charges for government activities should generally be recorded as revenues. If that treatment was applied to any of these specific fee options, the amounts shown in the table would be reduced to account for the fact that the fees would shrink the tax base for income and payroll taxes and, thus, reduce revenues from those sources. However, lawmakers have sometimes legislated the budgetary classification of fees, specifying that they be recorded as offsets to spending when they otherwise would have been recorded as revenues.

A rationale for implementing user charges is that private businesses should cover all of their costs of doing business, including the costs of ensuring the safety of their activities and products—for example, the Federal Railroad Administration’s costs for rail-safety activities (such as safety inspections of tracks and equipment and accident investigations) and the Environmental Protection Agency’s costs to register pesticides and new chemicals. In addition, it is argued that the private sector should compensate the government for the market value of services it benefits from, such as the dredging of the inland waterway system, and for using or acquiring resources on public lands, such as grasslands for grazing. If businesses provide products or services that cannot be priced high enough to cover all of their costs, it is unfair to taxpayers to have to make up the difference and a net drain on the productivity of the economy.

An argument against setting fees to cover the cost of regulation and recover the value of public services and resources is that some of the products and services provided by private businesses are beneficial to people not involved in producing or consuming those products and services; thus, it is both fair and efficient for taxpayers to subsidize the provision of those benefits. For example, by lowering the cost of rail transportation, taxpayers’ support for rail-safety activities reduces highway congestion and emissions of greenhouse gases. Similarly, support for the registration of new chemicals reduces the use of older chemicals that may be more damaging to public health and to the environment.