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

The federal government imposes regulations on individuals and businesses to ensure the health and safety of the public and to facilitate commerce. It 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. To cover the cost of enforcing those regulations and to ensure that it receives compensation for the services that it provides, the government could impose a number of fees or taxes. Those fees could be collected by several federal agencies and through a variety of programs.

This option would increase some existing fees and impose a number of new ones. The option is illustrative and includes several fees and taxes that could be implemented individually or as a group. If all of them were put in place, they would increase income to the government by $24 billion from 2018 through 2026. Specifically, under this option the government would make the following policy changes:

• Increase fees for permits issued by the Army Corps of Engineers ($0.6 billion),
• Set grazing fees for federal lands on the basis of the state-determined formulas used to set grazing fees for state-owned lands ($0.1 billion),
• Impose fees on users of the St. Lawrence Seaway ($0.3 billion),
• Increase fees for the use of the inland waterway system ($5.6 billion),
• Impose fees to recover the costs of registering pesticides and new chemicals ($1.3 billion),
• Charge fees to offset the cost of federal rail safety activities ($2.1 billion),
• Charge transaction fees to fund the Commodity Futures Trading Commission ($2.7 billion),
• Assess new fees to cover the costs of the Food and Drug Administration’s reviews of advertising and promotional materials for prescription drugs and biological products ($0.1 billion), and
• Collect new fees for activities of the Food Safety and Inspection Service ($10.8 billion).

Whether the fees included in this option were recorded as revenues or as collections that are subtracted from discretionary or mandatory spending would depend on the nature of the fees and the terms of the legislation that imposed them. Several of the specific fees listed in this option would typically be classified as revenues, in accordance 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 government activities should generally be recorded as revenues. If that treatment was applied to any of the specific fees included in this option, the amounts shown in the table would be reduced to account for the fact that the fees would shrink the tax base for income and payroll taxes and thus reduce revenues from those sources. However, lawmakers sometimes make the collection of fees subject to appropriation action. In those cases, the fees would be recorded as offsets to spending rather than as revenues.

A rationale for implementing user fees is that private businesses would cover more of the costs of doing business, including the costs of ensuring the safety of their activities and products. Some of those costs—the Federal Railroad Administration’s costs for rail safety activities (such as safety inspections of tracks and equipment as well as accident investigations) and the Environmental Protection Agency’s costs to register pesticides and new chemicals, for example—are currently borne by the federal government. Another argument in favor of this option is that the private sector would compensate the government for a greater share of the market value of services that benefit businesses (such as the dredging of the inland waterway system) and for using or acquiring resources on public lands (such as grasslands for grazing). If consumers highly value the products and services that businesses provide, those businesses should be able to charge prices that cover all of their 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 who neither produce nor consume 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. Similarly, support for the registration of new chemicals reduces the use of older chemicals that may be more damaging to public health or the environment.