“This bill reduces the deficit by $23 billion, it does not raise taxes, and it cuts spending in a smarter way.”
—Rep. Paul Ryan (R, Wisc.), Dec. 11, 2013
Technically, the budget deal doesn’t raise taxes. It raises government fees. The distinction makes a difference legally, but for selling the budget deal the difference is primarily semantic.
Rep. Paul Ryan’s press release announcing the 2013 budget deal included the claim it would not raise taxes:
The Bipartisan Budget Act will provide $63 billion in sequester relief — split evenly between defense programs and other domestic priorities — in exchange for $85 billion in savings elsewhere in the budget. In other words, this bill will reduce the deficit by an additional $23 billion, without raising taxes. And most important, it will cut spending in a smarter way.
Analyzing the Rhetoric
Technical differences exist between taxes, fees and penalties. The conservative-leaning Tax Foundation published a paper by Joseph Henchman, the Tax Foundation’s vice president of state & legal projects, explaining the distinctions in the context of federal and state legislation. We use Henchman’s work as the primary foundation for the next section.
Penalties, taxes and fees, oh my!
- Governments lay taxes for the primary purpose of raising general revenue.
- Governments impose fees to recoup the costs of specific government services.
- Governments impose penalties to punish and discourage certain behaviors.
The differences between them are not always distinct, however. A flow chart from Henchman’s “How Is the Money Used? Federal and State Cases Distinguishing Taxes and Fees” helps illustrate the challenges involved in distinguishing one from the other. One flowchart path shows that a charge laid primarily to raise revenue, if the funds raised are dedicated to a particular purpose, “could be tax, ‘user tax’ or fee.”
Note that classifying a charge according to its primary purpose ignores secondary purposes.
Fee increases in the budget deal
The budget deal increases revenue for the federal government two ways. It increases the contribution federal employees make toward their retirement benefits and it increases a fee associated with air travel.
A Heritage Foundation review of the budget deal assessed the air travel fee:
This fee increase would take the current amount from $2.50 per passenger to $5.60.
Unlike the original fee, this increase is not being used to fund or improve security. Instead, the revenue collected is being proposed to replace automatic spending cuts set to begin in January. The revenue, however, will not be directly distributed to the Transportation Security Administration (TSA); instead it will be deposited annually into a general fund of the Treasury.
We confirmed the deposit destination of the air travel security fee on page 58 of the budget bill. But Henchman’s chart counts a charge as a fee regardless of the deposit destination if its purpose is to recoup the costs of providing the service.
How much does the service cost?
In 2011, Homeland Security Today reported the fee supplied less than a third the Transportation Security Administration’s operating budget:
The consolidated spending law allocated TSA a total budget of $7.85 billion but about [$]2.3 billion in fees such as the aviation security fee offsets some of that funding.
We asked Henchman to comment on the potential gray areas.
“While it is correct to say that any revenue raised … that is used to pay for the service – as in this budget agreement – are fees, it is also correct to note that by raising that fee, it frees up general money previously subsidizing the TSA to be used for other purposes,” Henchman said. “Money is fungible.”
So it’s proper to call the charge a fee. But it also functions to some extent as a tax. Even if we classify the charge as a fee, hiking the fee serves the purpose of raising general revenue for the government—the classic definition of a tax. We don’t think the technical distinction makes much difference in selling the bill, but the semantic difference might.
“This bill reduces the deficit by $23 billion”
We were going to point out that the bill reduces the growth of the deficit, but we note some controversy over the $23 billion figure. To keep the fact check limited in scope, we’ll stick with assessing the claim the budget deal doesn’t raise taxes.
“it does not raise taxes”
Ryan is technically correct, to the extent that the fee increase contained in the budget deal helps pay for TSA security. But the dividing line between taxes and fees isn’t always clean. Since people tend to lump fees and penalties into the broader category of taxes, we think Ryan’s phrasing lends itself to salesmanship more than technical accuracy.
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