A Fee or a Toll or a Tax?
What’s the difference between a fee (or toll) and a tax? The only difference many Maryland politicians seem to recognize between the two is that it’s easier to impose a fee or toll than it is a tax. But often what politicians call a fee or a toll is really just a tax, as we are seeing in the debate over raising the state’s tolls and the discussion in at least one county over whether to do away with a so-called “impact fee.”
With both a fee or toll and a tax, someone is paying money to the government but there is a big difference between the two. With a fee or a toll, you are paying money because you are receiving a service from the government. I pay fees to the county so I can haul my garbage to the local landfill and to get my daughter’s birth certificate. I am paying a fee for the service rendered. This fee goes to pay the expense to the government of providing that service.
A tax, on the other hand, is not paid because I receive a direct service or any service at all. It’s paid to support the general function of government. We don’t pay user fees to support the police or for national defense or even for schools – we pay taxes that are used to fund things that, in theory at least, benefit the entire public.
Often, though, these distinctions are lost in DC or Annapolis. In the debate over increasing some tolls in Maryland, for instance, the state government wants to raise the toll on the Bay Bridge to pay for transportation projects throughout the state. If this happens, then the Bay Bridge toll won’t really be a fee, it will be a tax. The money you pay to cross the bridge won’t go toward fixing the bridge; instead, it may be going to pay for the upkeep of a road in Frederick that you’ll never use.
Similarly, there’s a debate in the county in which I live about the so-called “impact fee” imposed on new construction. One county council member wants to eliminate it, another wants to alter how it’s paid, while others want to leave it alone. Much like in the toll debate, there is a lot of confusion over this issue that needs to be sorted out.
The impact fee is levied on new residential construction with senior housing exempted. The money is used to help pay for expanding public school capacity. With the name “impact fee,” the rationale for this tax is that new people in our county impact public schools and should thus pay their fair share to help expand those schools. The exemption for senior housing makes this explicit, since seniors generally don’t impact public school enrollment.
The rationale just doesn’t hold up under close examination, though. Just because you buy a new home doesn’t mean you have children that will use the public schools. You may have no children or your children may go to private school. Or if you do have children that will go to public school, the impact fee is the same whether you have one child or ten. Conversely, those who purchase older homes may also have children that impact the public schools and yet they pay no fee.
An “impact fee” on new residential construction does not collect money to offset the impact that these new home buyers have on schools. It is, instead, an excise tax on new home buyers that is used to fund school construction. Let’s be honest about this and call it what it is. You can defend this type of tax as necessary because schools have unmet capital needs, but don’t pretend that it’s some sort of fee paid by users of government services. It’s a tax, pure and simple.
It took a while to make this distinction between fees and taxes. Instead of making this blog post overly long, I’ll continue my discussion on this issue on Monday. If the state does need more money to fund transportation needs or our county needs more money to fund education, then what is the best way to get that money? If the state doesn’t increase tolls or the county doesn’t retain its impact fee, how should the revenue be raised? I’m sure you’ll all be on the edge of your seat over the weekend pondering these questions.