User Fees in the Bipartisan Budget Act of 2013

What is a user fee?

The Congressional Budget Office (CBO) defines a user fee as “money that the federal government charges for services, or for the sale or use of federal goods or resources, that generally provide benefits to the recipients beyond those that may accrue to the general public. The amount of a user fee is typically related to the cost of the service provided or the value of the good or resource used. . . .”[1]

Why is a user fee different from a tax?

People can decide whether to use a specific government good or service. In those cases, they agree to pay a fee to receive the benefit. If they do not use the benefit, they do not pay the fee.

Taxes, on the other hand, must be paid regardless of whether the taxpayer wants the services that those taxes fund. CBO defines taxes as “funds collected from the public that arise from the government’s exercise of its sovereign or governmental powers.”[2]

Are programs funded by user fees different than other government programs?

Yes. Fee-funded programs provide optional goods or services that a taxpayer may wish to purchase from the government that are above and beyond the basic services normally provided to all citizens. Some examples include the National Flood Insurance Program, student loans, crop insurance, and mortgage insurance—among many others. In these examples, people agree to purchase a specific government service or benefit in exchange for a paying a fee. These benefits are not provided as a matter of routine to all citizens; they are available only to those that agree to pay an additional user fee.

In contrast, programs that are funded through general revenues (i.e. taxes) benefit all citizens, regardless of whether they pay taxes. For example, all citizens receive the benefits of national defense, the courts, homeland security, scientific research, infrastructure grants, and social safety-net programs.

What are examples of user fees in the federal budget?

There are many examples of fee-funded programs in the federal budget. Some examples include mortgage, flood, and crop insurance; pension guarantees; student loans, direct federal loans and guarantees; entrance fees to national parks and federally owned recreational areas; lease payments for energy exploration/production, grazing rights, and logging on federal lands; security fees for airline travel; cargo fees on commercial shippers; and many others.

What user fees are in the Bipartisan Budget Act of 2013?

The Bipartisan Budget Act includes reforms to the following fee-funded programs:

1.     Aviation Security (Transportation Security Administration)

2.     Customs User Fees

3.     Guarantees of Pension Benefits

4.     Conservation Planning

How do user fees affect the budget?

CBO confirms that the reforms to fee-funded programs included in the Bipartisan Budget Act would reduce mandatory spending. Currently, the fees collected by the government for many fee-funded programs do not cover their entire cost, so all taxpayers must subsidize certain programs from which many of them do not benefit. The Bipartisan Budget Act makes reforms to the fee-funded programs listed above so that the beneficiaries of those programs will cover a greater share of total program costs. These reforms reduce taxpayer subsidies to these programs, and so they, in turn, reduce the cost of federal programs.

Have House Republicans included user fees in other legislation?

Yes.  The Budget Control Act of 2011 included two user fee reforms to the Federal Student Loan Program.  Fees for mortgage guarantees provided by Fannie Mae and Freddie Mac were reformed in the Middle Class Tax Relief and Jobs Creation Act of 2012 as well as reforms to the National Flood Insurance Program.  The MAP-21 transportation bill included reforms to the Pension Benefit Guarantee Corporation as well as additional student loan fee reforms.  And, the House-passed FY2014 budget resolution included user fees as part of the savings to achieve a balanced budget.

[1] Glossary, Updated January 2012. The Congressional Budget Office.

[2] CBO uses the generic term “revenues” to describe the entire universe of various taxes.  It uses the term “taxes” in reference to specific provisions such as the individual and corporate income tax, the payroll tax, the gift tax, etc.