The States' New Hidden Tax

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If you live in Alaska and you buy a set of snow tires — somewhat of a necessity for most state residents — you’re paying more for them this year. If you’re taking the bar exam in Massachusetts, you’re paying a higher fee. If you own a bar (the wet kind) in Minnesota, you’re paying a higher penalty if you stay open past mandatory closing hours. If you go to a state park, you’re probably paying more to get in.

The reason? States have $78 billion in deficits to close. But in the current political climate, with the feds handing out tax cuts, raising taxes is political suicide. Legislators in 17 states did raise taxes this year, but only for about $6.9 billion — painful, yes, but less than 10% of the needed money. To compensate, a majority of states raised fees for government services, to the tune of $3.7 billion. It’s a politically smart move, since the higher tariffs anger voters far less than tax hikes or spending cuts. But many states are taking the idea too far, in effect making this another, less open system of taxation.

Supporters of fee increases over tax hikes argue that fees charge people for specific government services, while taxes hurt everyone. Only people who use state parks have to pay more money for their upkeep; only people who drive need to pay more for licenses. The extra fee money for those departments frees up budget money for other programs. Still, to paraphrase Everett Dirksen, $10 here and $10 there a few million times and pretty soon you're talking about real money. And the question is, are people being asked to pay more for these services than they're worth?

In addition to charging for licenses to drive or hunt or fish, many states are raising fees on home purchases and court filings; businesses are paying higher fees for many transactions. Health care providers and nursing homes are paying more. In North Carolina, local health departments are paying processing fees for pap smears — costs that are often passed on to the patient. One of the more questionable fees is in Minnesota where someone accused of a crime will now pay $50 for the services of a public defender.

Then there’s Massachusetts. Governor Mitt Romney issued one golden rule to his state’s legislature this year: He would veto any tax increases. Without the votes to override, lawmakers used spending cuts and fee increases to balance the budget. Romney did not object to fee hikes, he proposed several, and now the state has the highest fee increases in the nation: $500 million worth. Many of the fees are actually higher than the cost of the services provided. The extra money is going to the state’s general budget. Those aren’t fees - they’re selective taxes. Rather than taxing everyone in the state equally, the government is forcing those who need certain services to carry the load. Homeowners are being forced to pay a surcharge fee on their insurance to help support local police and fire departments — foregoing insurance is not really an option. Licenses for all kinds of businesses, from dairies to pet food stores to horseback riding schools, now cost more money.

Everyone has a different opinion on whether tax increases or spending cuts or both are the best solution for the states’ fiscal plague, but the decision should be out in the open so voters can express their preferences at the polls. Using excessive fees as stealth taxes isn’t honest and it displays a complete lack of political courage. And charging for necessities — like snow tires in Alaska — penalizes everybody. That might as well be a tax. It’d be more honest.