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

Federal law imposes a variety of regulations on private 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 over five years by imposing fees on users of certain services or otherwise charging for those services. For example, Discretionary Spending--Option 22, would increase the fees that cover the cost of aviation security by about $10 billion over five years; and Discretionary Spending-- Option 32 would support the regulatory functions performed by the Food Safety and Inspection Service by expanding collections, which would raise $5 billion from 2012 through 2016. A number of other fees or taxes that 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 currently 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 independently. However, if all were put in place, they could increase income to the government by $3 billion from 2012 through 2016 and by $8 billion over the 2012-2021 period. Each of the fees in that group appeared as an individual option in CBO's Budget Options: Volume 2 (August 2009).

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 normally 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 governmental activities should generally be recorded as revenues. If that treatment were to apply to any of these specific fee options, the amounts shown in the table would be recorded as revenues and adjusted downward to account for their effect of shrinking the tax base for income and payroll taxes and, thus, of reducing revenues from those sources. However, the Congress has 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 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, and the Environmental Protection Agency's costs to register pesticides and new chemicals. In addition, 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 and mineral deposits. In that view, it is unfair to taxpayers and a net drain on the productivity of the economy for businesses to provide products or services that cannot be priced high enough to cover those costs.

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; 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; and not charging tolls on the portion of the St. Lawrence Seaway that is controlled by the United States supports the economies of port communities on the Great Lakes.