In Case This Needs Saying: It’s a Tax

Posted by Jim Harper

Last week, President Obama unveiled a plan for something he called a ”Financial Crisis Responsibility Fee,” to be fleshed out in his forthcoming budget proposal. He will seek to have some set of financial services providers pay money to the government as comeuppance for the recent financial crisis and government involvement in trying to remedy it.

The naming of the “Financial Crisis Responsibility Fee” is a fairly conspicuous attempt to avoid calling it a tax. (My colleague David Boaz points out the sheer number of taxes the Obama administration and its allies are considering.) But it’s fairly clear that this thing is, indeed, a tax.

The galaxy of government revenues has a number of different planets—taxes, fees, penalties, and a few others. If they’re well constructed, fees are generally favored because the recipients of services or benefits pay their costs. Fees avoid redistribution of wealth (either toward or away from payers). But this doesn’t mean that you can name any payment to the government a ”fee” and produce fair and appropriate results.

When I worked on Capitol Hill, I was tasked with writing a bill to deny federal agencies the power to raise taxes, requiring them to be approved by Congress. (You’d think that only Congress should set or raise taxes, right? Sorry to disappoint.) The goal was not to draw fee-setting into the ambit of the bill.

After extensive reasearch into the dividing line between fees and taxes, which is not as simple as one might imagine, I produced the following definition, as found in the Taxpayer’s Defense Act (introduced in the House during the 105th Congress, and the House and Senate in the 106th Congress):

[T]he term “tax” means a non-penal, mandatory payment of money or its equivalent to the extent such payment does not compensate the Federal Government or other payee for a specific benefit conferred directly on the payer.

Parsing it briefly: A penalty is not a tax. A voluntary payment is not a tax. Both payments of money and tranfers of value not denominated in dollars can be taxes. A payment that compensates a benefit conferred is not a tax, but the part of a payment going above the benefit conferred is. Non-tax payments are for a specific benefit conferred directly on the payer, not benefits conferred on regulated entities generally or on the country as a whole. (Though this isn’t specified in the definition, being regulated isn’t a benefit.)

With even the New York Times referring to President Obama’s “Financial Crisis Responsibility Fee” as a “tax,” there doesn’t seem to be much chance of that the administration will get the “fee” label to stick. But, just in case, here’s confirmation: It’s a tax.