Bush, an Opponent of Raising Taxes, Proposes $47 Bln in Fees

Bush, an Opponent of Raising Taxes, Proposes $47 Bln in Fees
March 1 (Bloomberg)

While President George W. Bush is adamantly against raising taxes, he's increasingly comfortable with imposing billions of dollars in new government fees, as the airline, commodities and shipping industries have discovered.

Bush's 2007 budget proposal would raise more than $47 billion over the next five years by imposing, raising or extending expiring fees on everything from airline tickets to oil drilling to commodity transactions to ships passing through the St. Lawrence Seaway.

``It's a way for the administration to get around its `we'll never-raise-taxes' attitude,'' said Stan Collender, managing director of the Washington office of Financial Dynamics, a business-consulting firm.

Bush won't suffer politically from what is essentially a tax increase, because he has backed extending even larger tax cuts, said Grover Norquist, a prominent anti-tax activist.

``A tax increase offset by larger tax cuts may or may not be a good idea, but it's not a sin,'' Norquist said.

Administration officials said the fees shift the costs of programs from taxpayers to the industries and individuals that receive government services. Opponents call the new charges thinly veiled tax increases that are unlikely to be approved by Congress.

The government collects billions of dollars each year in fees in the form of postage stamps, Medicare premiums, entrance tickets to national parks and scores of other charges. Last year, those fees totaled more than $185 billion, the equivalent of about 8 percent of the government's $2.4 trillion budget. The administration's proposal would impose $3.4 billion in new fees next year, growing to $15 billion in 2008 before shrinking to $8.7 billion in 2009.

Airlines, Oil and Gas

The increases would hit a host of industries next year. The administration wants to double the security surcharge on airline tickets. It wants to charge oil and gas companies $4,000 to process permits to drill on federal lands. It wants to charge the meat, poultry and egg industries more for federal safety inspections and increase federal medical-care charges for some military retirees.

``User fees help match the cost of government programs with those who benefit from them,'' said Scott Milburn, a spokesman for the White House's Office of Management and Budget. ``It's not reasonable for all Americans to bear the entire cost of government activities from which they only receive a partial benefit,'' he said.

Commodity Futures

Industries subject to the new fees see the issue differently.

John Damgard, president of the Washington-based trade group Futures Industry Association, said an administration proposal to raise $127 million next year through a new fee on commodity futures and options contracts amounts to a new ``transaction tax.''

Goldman Sachs Group Inc., the world's second-biggest securities firm by market value, and Morgan Stanley, the third- biggest securities firm, are among companies represented by the trade group.

``You tax us on the money we make, don't tax us on how we make our money,'' Damgard said.

The fee would apply to approved exchanges and is intended to cover the cost of government regulation of the industry. The Commodity Futures Trading Commission is the only federal financial regulator that is not funded by the organizations it oversees.

`Drive Business'

Damgard said the administration's proposal would hurt the futures industry. ``This will drive businesses to markets where they do not require the tax,'' he said.

Lawmakers, including Democrats such as Representative David Obey of Wisconsin and some Republicans, said the proposals amount to accounting gimmicks that enable the administration to claim it's holding the line on spending without having to sacrifice popular programs.

House Appropriations Chairman Jerry Lewis, a California Republican, wrote in a memo to his colleagues that the ``proposals make a difficult appropriations season even harder.''

``They allow the administration to artificially inflate programmatic priorities (and expectations) while at the same time touting a `fiscally conservative' top-line budget number,'' Lewis wrote last month.

Explosives

Bush also has proposed a new fee on explosives manufacturers that some industry officials said would be excessively costly. Chris Ronay, president of the Institute of Makers of Explosives, a Washington-based trade group, said a proposed 2 cents a pound fee on explosives equals about 12 percent of the cost of the product.

``It is monumentally expensive compared to what people pay today,'' Ronay said.

The administration said the fee would generate an additional $120 million needed to help fund the Bureau of Alcohol, Tobacco, Firearms and Explosives, which regulates the explosives industry.

Airlines are targeted by a proposal to increase the security surcharge on tickets.

``At the end of the day, the money has to come from somewhere,'' said Transportation Security Administration Director Kip Hawley, defending the proposal at a congressional hearing last month. ``Our sense is that it's fair to have that part of it come from the air passenger.''

A Public Good

The industry has rejected that argument, contending that airline safety is a public good. ``Aviation security is a function of national security and should be paid as such,'' said James May, president of the Washington-based trade group Air Transport Association, which represents companies such as AMR Corp.'s American Airlines and UAL Corp.'s United Airlines.

For some lawmakers, the fees are an obstacle to putting together the federal budget.

``Here's what tees me off,'' said Representative Harold Rogers, a Kentucky Republican, at a Feb. 16 hearing. ``OMB and the department, knowing that you cannot pass a tax, instead build it into the budget and puff up the budget, then dump it on the laps of this committee, and we've got to find a way out of the mess that you've made.''

Damgard said Bush should take a lesson from his father, who as president publicly promised not to raise taxes, and was vilified by some Republicans after agreeing to a tax increase. ``This is a bad idea,'' he said. ``Ask his dad.''