v. Taxes: More Than An Academic Debate
The Governor should avoid harming taxpayers…
[by Jon Coupal] 1/17/06
tax experts and policy wonks, there has always been a debate
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.
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.
Coupal is an attorney and president of the Howard
Jarvis Taxpayers Association -- California's largest
taxpayer organization with offices in Los Angeles
and Sacramento. [go to website] [go
to Coupal index]
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?
and fees are, in fact, exercises of a government's "taxing" power
broadly construed, a power deemed inherent in both nations
and states. But there are differences. A "tax" is
imposed as an incident of some action -- earning income, purchasing
consumer goods -- that is totally divorced from the purposes
for which the money will be spent. A "fee," on the
other hand, is justified by some service provided to the fee
payer. A classic example is a toll bridge. You want to cross
the bridge? Pay the toll.
also an element of proportionality relative to fees. In other
words, if a fee payer receives more benefit, they pay a higher
fee. Getting back to our bridge example, an 18-wheeler inflicts
more wear and tear on structures and surfaces so, typically,
trucks pay a higher toll.
of proportionality also applies to so-called "benefit
assessments" on property. An assessment is a levy above
the normal one-percent "ad valorem" tax and is frequently
used to finance capital improvements that directly benefit
adjacent properties. Streets, sidewalks and sewer lines are
frequently financed this way. However, such levies are supported
-- when done correctly -- by detailed engineering reports that
specify the proportional benefit to specific parcels. If one
parcel is benefited more, then the property owner will rightfully
be assessed a higher amount.
One of the
Governor's specific proposals for flood protection and water
storage is the imposition of a "fee" to be collected
by water retailers on water users in California. This proposed
levy is projected to raise $5 billion from homeowners and businesses
in the state. The amount of the levy would be $3 for homeowners
and $5 for industrial properties, not every year, but every
month. Other classes of properties also would have to pay but
two things are clear: The fee structure appears pulled out
of thin air and homeowners would take the hardest hit.
so-called "fee" is nothing more than a tax is beyond
debate. There is no effort to proportion the amount of the
levy to any benefits conferred to fee payers. The "fee" is
not voluntary, imposed only when taxpayers choose to engage
in an activity triggering a fee: If you own property, you get
hit. The "fee" is not imposed in a limited geographic
area to finance improvements of a local nature. It is a statewide
levy. In short, it is a statewide tax increase on the magnitude
of $5 billion.
This $5 billion
tax increase is cause enough to create a backlash among homeowners
and taxpayers. But the Governor's plans also include a substantial
weakening of the Right to Vote On Taxes Act, passed as Proposition
218 in 1996. We are still trying to figure out what is to be
gained by attacking the rights of taxpayers merely to vote
on proposed revenue increases.
all shakes out remains to be seen. We are hopeful that those
elements of the Governor's proposals that hurt taxpayers are
withdrawn quickly. If not, it is going to be a long year for
the man who was elected to restore fiscal integrity in California. CRO
2006 Howard Jarvis Taxpayers association