Taxes vs Fees – How do we pay for the services Gov’t provides

Once we decide what we want our governments to do, we need to decide how we want to fund those activities.

Income taxes are just one form of taxation and revenue generation. Here in California, Prop 13 has left state and local governments relying on fees to meet their revenue needs. Although “pay as you go” might sound attractive – you only pay if you use a service, like state parks – the actual result isn’t as clean-cut as it sounds. Unfortunately, the fees spiral upwards because, as higher fees cause the number of users to decline, revenue declines and fees have to be increased further. It doesn’t just effect public benefit services like parks, fees become a drag on whole industries, like construction.

There is also the question of taxing consumption vs taxing income. Sales taxes are common here in the U.S. and value added taxes (VAT) are common in some other countries. Where income taxes can be tailored to be either progressive, regressive or neutral, it is very difficult to avoid consumption taxes being regressive – hitting less well-off citizens more than wealthier ones. Fees are a form of consumption tax.

Do lower taxes stimulate the economy and create jobs or is this just a myth? It can be effectively argued that our economy, our infrastructure and our society are actually harmed when tax rates are lowered excessively or the tax burden is unfairly distributed.

Let’s discuss the methods government can use to raise the funds it needs to do what we expect it to do and who should be contributing what.

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