Let us now debate the difference between user fees and taxes - Macleans.ca

Let us now debate the difference between user fees and taxes


John Baird says the government will increase the airport security fee charged to air travelers, the opposition critics say this is a tax and this is perhaps relevant because the Prime Minister once said, “I give you my word, as long as I will be Prime Minister … there will be no new taxes.” (In fairness, he said “no new taxes,” which wouldn’t, one supposes, necessarily preclude him from increasing taxes that already exist.)

Here, for the sake of argument, is how the distinction was explained in a 1987 New York Times story about the Reagan administration’s attempt to navigate this discussion.

Joseph A. Pechman, a leading tax authority and a senior fellow at the Brookings Institution, thinks there can be a distinction. A user fee – such as the admission fee to national parks – is, he said, ”imposed on individuals who use certain services provided by the Government and is proportional to the use of the service.” By contrast, he defines a tax as a ”mandatory assessment on an individual family based on certain characteristics, such as income or consumption.”

But Mr. Pechman adds that a user fee is sometimes not very different from an ”excise tax,” which is a tax imposed on particular commodities, such as gasoline, cigarettes and alcohol.


Let us now debate the difference between user fees and taxes

  1. I am quite certain I recall the National Citizens Coalition and/or the Canadian Taxpayers Association, possibly Harper, Preston Manning or Stockwell Day, refer to user fee increases under Chretien as "tax increases". When I get a chance I'll do some research.

  2. How's this for starters:

    Terence Corcoran, “User-Fee Madness,” The Globe and Mail, January 19, 1996" "“whatever rationale exists for user charges, it has long ago been driven off the agenda. What we have today are plain, old tax increases dressed up in pseudo-free-market jargon about the need to bring real-cost and real-price discipline to government spending.”

    • And a 14 year old quote from a journalist not at all affiliated with the Conservative Party of Canada is relevant to your argument how? Lemme show you the correct way to do it:

      Air travel taxes are so high as to be a significant barrier to commerce and a national unity issue. Any security enhancements should be paid from general revenues; while not technically a public good, air travel has some public good qualities. Additionally, the Conservative government must re-introduce the legislation it dropped last parliament requiring travel companies to include all taxes in their advertised prices.

      There. Was that so hard?

      • I'm just posting some commentary on the general subject. I express my personal opinion down below.

        Sometimes people actually want to discuss issues and inform themselves, you know. Not every post is a vitriolic partisan swipe. At least, not from everyone else.

  3. If the user fee was for a service provided by a private company, then it wouldn't be a tax, so wouldn't it be reasonable to say that a user fee for a gevernment service is not a tax either.

  4. Cons can call it whatever they want – when government takes your money, it is a tax.

    • What if it's a corporation partially owned by the Canadian Government, like say, Air Canada?

      • Air Canada was privatized 22 years ago. Possibly a different example would be better here.

  5. The two essential questions are:

    1. Is the revenue from the "user fee" used for general spending, i.e. does it go into general revenue, or does it go straight to the security costs from whence they are paid?

    2. Is the "user fee" reasonably related to the costs of the security?

    Not all user fees are hidden taxes, that I will agree. But not all user fees that aren't taxes remain so.

    But the question of Harper saying "there will be no new taxes” has already been settled: in his first month he increased income taxes, then he broke his promise and taxed income trusts, then he decided to bring in a carbon tax with cap and trade (calling it a "carbon charge" doesn't change what it is; conservatives in the US call it a tax as well), then he increased payroll taxes on businesses.

  6. Some more finds:

    Richard M. Bird and Thomas Tsiopoulos, “User Charges for Public Services: Potentials and Problems”, Canadian Tax Journal (1997), Vol. 45, No. 1 / no 1: ”Nonetheless, the second challenge to user charges arises from a simple fact of political life: if charges are imposed on a service previously provided for free, then however rationally the charges may be designed those who previously benefited from “free” (or subsidized) provision will see them as just another “tax.” This reaction is natural, especially since there is most unlikely to be any reduction in the general taxes that the former beneficiaries have to pay.”

  7. p.38-39: "Benefit taxes are defined here, rather arbitrarily, as compulsory levies applied to individuals (or institutions such as corporations) who are assumed to benefit as a group from certain government services. These taxes are not directly related to the receipt of specific services by particular individuals. Taxes on gasoline are an obvious example.

    p.44:"If there is no price responsiveness—if the demand for the service is virtually inelastic—then any price charged for the service will simply “tax” those who use it."

  8. Some more thoughts (I love Google!):

    Joseph Henchman for the Tax Foundation: “because the American antipathy to taxes is so deeply rooted in our nation's history, lawmakers often seek to raise revenue in ways to avoid the "tax hiker" label even if it requires calling an obvious tax a "fee." That's what's happening here. These shell games undermine transparency by making it harder for citizens to understand the cost of government, and it can encourage them to demand more government services than they are actually willing to pay for. That, over time, can undermine fiscal stability and neutrality.”

  9. I wouldn't call this a user fee (since no one chooses to use airport security, they choose to fly, which is not a public service) or a tax – it's a toll.

  10. And here's one from a politician highlighting those shell games:

    Florida Representative Jim Waldman recently put it this way : ”To me, it doesn't really matter. A tax is a tax, a user fee is a tax. It's the same thing. They like to hide behind the semantics. I choose not to. I'm calling it a user fee only because I have spoken to my Republican colleagues who said they would support it if it was called a user fee.”

  11. Seems to me Harper should just come out and do what his secret agenda wishes to do — which is slap all new ideas with a tax. Thus, the CONs will come away scot-free, but can slap those eggheads for every utterance.

  12. You can argue the semantics of a user fee versus a tax increase if you want. The bottom line is there is no free ride and somebody has to pay for the services provided by government. Those that fly should pay the cost of security. Those that use unemployment insurance actually or potentially should pay for it. Those that use daycare should pay the cost. The list goes on.
    Of course the opposition will argue its a tax as did Harper when he was in opposition but Canadians know somebody has to pay the freight. I would much rather pay for a service if I use it rather than having to see my marginal tax rate skyrocket to pay for anything and everything.

    • Would you be willing to pay for the roads you're using and I'm not? Or how about the electricity you're using and I'm using (hypothetically) less of?

      Many who suggest everyone should pay their own way don't mean it for everything, just some stuff, sometimes.

    • you offer up one vision of how to attain the public interest. there are others. that you prefer this one is great. that is a far cry from meaning it is the best, or most desirable alternative.

    • Or we could always decide that the scanners don't provide enough real security to be worth their cost (but they do provide a lot of security theatre) and not bother to buy them. Then we spend no money and no fees are required.

      But that doesn't feed the security theatre bureaucracy that CATSA has turned into, so we really can't do that.

  13. I assume all of the costs of the new security measures – the new scanners, the staff, the training, repairs, additional electricity, etc. – are all costs of the government and not the airport.

    If the additional security is the cost of the government and the fee is reasonably related to costs (or less), then it is a genuine fee for service, the service being the additional security they decided we needed, and not a tax.

    • http://www.servicecanada.gc.ca/eng/home.shtml
      claims to be a one-stop-shop for Canadian government services… there are a entire whack of them, but airport security costs are not included. The idea of treating airport screening as a service is absurd… you are not getting value, they are trying to catch you doing something wrong. (True you get benefits, but so do all the homeowners near airports who do not end up with plane parts in their backyard, shareholders in the airlines etc.) If the logic of airport security as a service is taken to its logical conclusion, then the RIDE program should charge everyone they stop a fee.

      I think CraigO has it correct.. it is a toll.

      • I'm pretty sure the website wasn't meant to be an exhaustive list of that which is considered a "service".

    • They didn't decide we need it. The US government did, and we folded and went along. After all, jacking up air travel fees yet again in the name of security theatre usually sells well with the public.

  14. Read my ellipsis…

  15. If you are interested in avoiding unfair "taxes" of lack of competitive prices, bad snacks, Fees a solution is available for a large number of Canadians (80% of Canadians live within 60 miles of the U.S. border.)

    Bonus you avoid the 4 hour line ups! Drive across the border and fly out from the US regional airport.

  16. The Supreme Court jurisprudence stays quite current on this question, the most recent decision being Connaught v. Canada (20 Connaught Ltd. v. Canada (Attorney General), [2008] 1 S.C.R. 131, 2008 SCC 7). The general test is 5 part for distinguishing whether a charge is a fee rather than a tax. I won't go into the details, as it's all summarized in the case. I should however add that I think the SCC has interpreted the test in such a broad way that almost any kind of charge other than income tax or an excise tax could conceivably be considered a fee, if the court felt like it. I don't particularly like where the court has taken the jurisprudence for that reason, particularly with Connaught, but it's currently the law.

    • Indeed. The distinction can even be relevant, like when you have to decide whether the Copyright Board can put the blank media levy on an MP3 player, or if your union has to pay the new provincial health care "premium".

  17. Enough with debating minutiae and semantics.

    In the Halloween massacre, $18 billion of market value was wiped out by the prospective entinguishment of the income trust structure. An enormous new tax is thus to be applied to corporations so structured next year.

    In his first budget, Harper raised the personal tax rate applicable to the lowest income level.

    EI premiums have been increase sharply this year.

    There is nothing to argue about.

    This government repeatedly raises taxes and now runs massive deficits.

    • Hack'n'Tax Conservatives?

      or Tax and Spend and Borrow Conservatives?

  18. This fee/tax or whatever you wish to define it as will add costs to that transborder/international flight that does not exist at airports across the border in the US. airports like Bellingham WA, Seattle, Buffalo and Burlington VT benefit from fee hikes. It is so easy for consumers to surf the net and see where the airfare deals are. Add this to the general state of anger about the HST and you'll see Canadians go out of their way to avoid traveling from Canadian airports.

  19. Roads, national security, electrical infrastructure…those are the things the federal government should be paying for. Everyone will travel on the roads, use the electrical grid and benefit from national security. Will everyone use day care? Fly in an airplane? No, but they should contribute to it through their tax dollars? I don't get your logic C_9

    • Sorry for your confusion. hollinm suggested that those who fly should pay flight security, and that those who use EI should pay for it (an interesting little catch-22), those that use daycare should pay the cost, etc.

      So I took that to a logical, but less often considered, extrapolation: what about roads, or electricity? I chose those because in Canada those are heavily subsidized by my upper-middle-class taxes, yet I use far less than what you might consider "my share".

      Should that matter? I'd love a big tax break, and for the actual drivers to have to pay. But the uproar over a simple vehicle licensing fee in Toronto showed me that, as we mostly already know, Canadians aren't actually willing to pay their own way. Ditto health care, defence, day care, or whathaveyou.

      As kcm points out above, collective action and improvement through pooling of financial capabilities is one of the key benefits of a nation state. We can't have a miitary at ALL if we don't have taxes, and our roads would be fewer, lesser, lower-quality, and more dangerous if only drivers paid the full cost. Which is a shame, because a nice tax refund this year would be helpful for me in paying those new airport security theatre tolls.

  20. His logic is perfectly clear. Take the issue of school taxes. My father often grumbles that he shouldn't have to pay for other peoples kids going to school. I couldn't agree less. Are we a country or a union of complaning, albeit unequal beneficiaries of public goods? I don't use the health care system much, yet i pay my taxes and count my blessings, not resent folks who are less fortunate taking more than then i do.

  21. I thought Martin was debating selling off the 1% share the Government has in Air Canada, and chose not to.

    I remember the head line, I just can't find it anymore.

    • I can't find it either, but it's entirely possible that before Air Canada's bankruptcy the government still owned some shares. But:
      a) They don't any more
      b) AIrport security fees have nothing to do with airlines at all. CATSA is the target of your ire. (or others' ire)

  22. Ontario Conservatives howl about Dalton's user fees all the time, saying they are nothing but tax grabs.

    Except, really, aren't they costs to the people who use the service?

    Isn't that a conservative thought plank? That people should pay for what they themselves use, and not through some socialist enforcement scheme?

    • Ontario's conservatives are having a tough time with consistency right now… please leave them alone.

  23. Mr. Pechman adds that a user fee is sometimes not very different from an ”excise tax”

    Johnson defined excise as "A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid."

  24. I think I've figured it out. If you're in power its a fee. If you're in opposition its a tax…

    Mr. James Moore : Can the minister tell this committee, and clarify once and for all for Canadians, in law what is the difference between a tax and a fee?
    Ms. Carole Swan (Associate Secretary, Treasury Board of Canada Secretariat): Fees relate to charges made for rights and privileges for regulatory programs where there are advantages conferred and for issues where users receive a larger benefit than the general taxpayers. These are things that are attributed more or less directly to the service or to the regulatory program in terms of cost recovery.
    Mr. James Moore: Right. Therefore, given the definition that a fee is related directly to a service, and it's generally accepted that a fee is dedicated to the appropriation of that service on a cost-recovery basis, would not the $24 air tax be considered a tax, not a fee, as the minister keeps defending? The air carriers, when they collect the tax, cut a cheque to the Receiver General, not to the independent air security authority. It would be a tax, right?
    (more in next post)

  25. It's a government imposed charge on a product or service that will be used to fund a massive sprawling government bureaucracy that creates nothing of value.

    Sounds an awful lot like the taxes Harper and crew used to complain so much about. I guess they wouldn't have to twist themselves into hypocritical knots trying to not call it a tax (although Liberal imposed user fees are taxes according to them) if only they could stand up to the Americans ludicrous security paranoia.

    But that can't happen, given that Harper's policy direction these days is "do whatever the US does".

  26. (continued)
    Ms. Lucienne Robillard: But I would say that for the tax recovery in the fees, generally speaking–and as you know, we have 400 programs right now where you would find some fees or some cost recovery–the money doesn't go directly to the departments. It goes to le Fonds consolidé.
    Mr. James Moore: Therefore, it's a tax. The $24 air tax is a tax.
    Mr. Paul Szabo (Mississauga South, Lib.): No. Just because it goes to the Consolidated Revenue Fund doesn't mean it's a tax. All funds go there.
    Mr. James Moore: That's not true.

  27. A rose by any other name is still a rose..