Budget Deal Doesn’t Raise Taxes But Many Will Still Pay More
The budget deal announced Tuesday wouldn’t raise taxes—members of Congress can vote for it without violating their no-tax pledges. But the plan will collect billions of dollars in new revenue by boosting fees and increasing workers’ contributions to the Federal Employee Retirement System (FERS). To people paying them, those higher fees and payments will feel a lot like tax hikes.
The plan would raise fees in four areas.
Higher fees on air travelers would bring in an additional $12.6 billion over the next decade. Flyers would pay $5.60 for each one-way trip, up from today’s $2.50 per flight leg. The change would actually benefit some passengers—those who take three or more flights to reach their destinations—but most travelers would pay more. But, as the budget committee explains, the fee is voluntary—you only have to pay it if you choose to fly.
Boosting the amount paid by employers to fund the Pension Benefit Guarantee Corporation (PBGC) would bring in another $8 billion. The basic premium was already scheduled to rise from $42 per participating worker to $49 in 2014 and to climb with inflation after that. The budget plan would take it up to $57 in 2015 and $64 in 2016. Additional premiums for underfunded company plans and for discontinued plans would also increase. Of course, only firms that choose to hire workers have to pay the higher premiums.
Increased fees for customs users and conservation planning would bring in smaller amounts of revenue.
One other group would get hit with a non-tax that feels like a tax: government workers. People who take jobs with the federal government after 2013 will pay more into FERS—4.4 percent of their pay, up from 1.3 percent today—adding $6 billion to federal receipts over ten years. Paying more won’t give workers higher pensions. To them, the higher premiums will look a lot like a tax.
The House Budget Committee provides a convenient explanation of why fees are not the same as taxes. Fees, it explains, are payments for benefits people choose to receive. “Taxes, on the other hand, must be paid regardless of whether the taxpayer wants the services that those taxes fund.” That differentiation may hold up in theory but doesn’t in practice.
A couple of examples show the problem. I pay the TSA ticket fee because I choose to fly. How does that differ from my paying the gasoline tax because I choose to drive a gas-powered car? And how does the PBGC premium differ from FICA taxes that employers pay for their workers? Fees and taxes often aren’t very different for the people who pay them.
Members of Congress can vote for the budget plan and claim that they didn’t vote to raise taxes. That may be technically true but I’m not sure that their affected constituents will really believe them.