EYE ON THE PIE: Should fees replace property taxes?

August 27, 2007

So you want to be a boxer in Indiana? There's a $10 fee to be paid every other year for the privilege. That's a lot lower than the twoyear fee of $100 paid by architects. A driver's license is good for five years and costs just $19.50.

Whereas your aircraft bears a $10 annual registration fee, your passenger car has a $20.75 annual state fee. If you want to support a special cause, the Bureau of Motor Vehicles charges a $15 administrative fee on all special-recognition license plates, plus whatever your special group charges. If you want a number from 1 to 100 on your plate, that will be an additional $30.

Yes, folks, Indiana can get rid of the property tax. Let's just go to new and higher fees.

The preceding examples are state fees that could be shared with localities, or we could greatly expand local fees. Fees most often are assessed for specific services or privileges. If you want to park your car on the street downtown, you pay a fee at the meter. You could park farther away, where there is no charge for parking. You could take a bus, if your town has bus service.

We could start charging tolls for driving on state highways, with the revenue shared with local governments. Locally, we could introduce fees for driving in congested areas, as is done in Singapore and London and now being proposed for New York City. We could impose higher fees for birth and death certificates, marriage licenses and building permits, and add local licensing fees for barbers and doctors, who already pay state fees.

High fees for inspecting restaurants might be good for raising revenue. Steep fees for inspecting rest rooms at gasoline stations might be socially beneficial. We could make property owners pay fees for pothole repairs. Garbage collection is a perfect example of a service that could be (and has been) switched from property taxes to fees. We are limited only by our imagination and audacity.

The advantage of fees is that government revenue is determined by individual choices, based on their preferences and income. You pay for what you use, not for what you earn or own or what you buy in the private sector.

There are some questions: How would we pay for police and fire services? Would we want fees for schools, libraries and playgrounds? How would we finance health care for the indigent? Who would pay to support the City-County Council and county commissioners?

One way would be to charge fees that greatly exceed the cost of services provided. For example, we could charge for sewer service or local licensing of plumbers way more than is necessary to cover costs. The excess could be used to fund the courts and prisons.

Another possibility is to augment fees with higher fines. Did you park in front of a fire hydrant? That will be $200. Is your library book overdue? Please fork over $2 a day, instead of today's lower fines.

Fines are wonderful because they punish people who fail to obey the rules. It gives all of us a good feeling to know the deeds of the wicked can result in benefit to society. Just think of the behavior you would like to fine. How about loud car radios? Or irresponsible gun storage?

Yes, with courage, the General Assembly's property-tax study committee could recommend increased fees and fines to set us free from the "despotism of unfair taxation." We would substitute more government monitoring of our behavior, but that does not seem to bother Americans these days.

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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