The SAGE Commission vs. The Tax Pledge

(Chuck Muth) – Congratulations to Republican state assembly candidate Ira Hansen who came up with the first and only credible objection to signing the Taxpayer Protection Pledge, which would promise the voters of his district they he would oppose and vote against any and all efforts to increase taxes. And after responding and overcoming that objection, I hope Mr. Hansen and other GOP candidates will ink their John Hancock’s on the Pledge.

Ira’s concern rested with recommendations found in the SAGE (Spending and Government Efficiency) Commission’s final report.

The SAGE Commission came up with 44 different recommendations designed to save Nevada taxpayers millions upon millions of dollars. So when Ira told me he wanted to support the SAGE Commission recommendations but that FEE INCREASES were included…and he didn’t want to sign the Pledge if it meant he couldn’t support the SAGE recommendations….well, that got my attention.

Ira sent me a copy of “SAGE Nevada: Bipartisan Directions for Nevada’s Future” by Frank Partlow, who served as the commission’s executive director. At issue is Recommendation 18 which reads as follows: “All state agencies should review the fees charged for services to ensure the fees cover the costs of providing the services.”

In essence, this means if a state agency isn’t charging a fee high enough to cover the cost of providing the “service,” then the fees should be increased, which, Ira feared, would be a violation of the Tax Pledge. Legitimate concern and legitimate objection.

OK, let’s start with clarifying the lingo, especially the use of the word “service.”

“Service” indicates a “user” fee is in question….and increasing user fees is NOT a violation of the Tax Pledge. That said, there is a specific definition of exactly what constitutes a true user fee. Here’s the explanation from Americans for Tax Reform, the national sponsor of the 25-year-old Pledge:

“To qualify as a user fee, a charge must fund a specific service, with no excess going into the general fund; the charge must be paid only by those who use that government service; and individuals must have the choice whether to purchase the service from government (and thus pay the fee) or to purchase the service from a private business. Excise taxes, sales taxes or taxes levied on businesses to pay for government regulation are not user fees.”

So for example, let’s say you want to rent out a picnic area at a public park for a wedding and the park charges a fee for that purpose. Should the Legislature wish to raise the fee charged for renting that picnic area, it would not be a violation of the Tax Pledge because the individual would have the option of simply going somewhere else for their wedding and thus avoid the fee.

However, this is NOT the kind of fee the SAGE Commission is talking about. Here’s the example Mr. Partlow uses to explain Recommendation 18 in his book.

“An example of this is Consumer Health Protection within the Health Division of Health & Human Services, which provides regulatory services for areas such as radiological devices (x-ray machines), food establishment inspections and permitting, solid waste disposal, and so on.

“For Fiscal 2009 this program has a General Fund appropriation of $1.077 million. Fee income to this program is $1.632 million. Therefore, the general public is funding over a third of the cost of services provided to a specific segment of the community.

“Fees established to cover the actual costs of the services provided by other programs are also, in many cases, inadequate. This results in all taxpayers funding part of the cost of a service provided to a very small segment of the community. Unless public policy dictates otherwise, fees should be set to cover the actual cost of the service.”

OK, here’s where we take a bit of an issue with the SAGE Commission report.

What they’re talking about in this example isn’t a “service,” it’s government regulation. And those benefiting from the government regulation are Nevada’s general population, not the businesses involved. As such, the fees charged to these businesses aren’t user fees, they’re taxes. The businesses have no choice whatsoever but to pay the fees or be shut down by the government.

Now, from a purely philosophical perspective, I would argue that since the regulation of the industry or business has been deemed in the general interest of the Nevada citizenry, then the cost of the regulation should be born by those who supposedly are the beneficiaries. That would be the citizens, not the businesses. Therefore, the full cost of about $2.7 million in the above example should come from the general fund, not from fees (taxes) on businesses.

That said, the question is whether or not support for this particular SAGE Commission recommendation would be a violation of the Taxpayer Protection Pledge, not whether it’s a violation of conservative limited-government principles. And the answer is: Not necessarily. Here’s why.

Again, I refer back to the authoritative source for questions regarding the Pledge, Americans for Tax Reform (ATR):

“While ATR opposes any tax increase as a matter of principle, the Pledge does not require opposition to revenue neutral reform. However, for tax reform to be considered revenue neutral, a tax increase must be tied to an offsetting tax cut of at least equal size.”

So….

In the example cited above by Mr. Partlow, if the Nevada Legislature were to increase the fees on the regulated businesses by $1.077 million dollars, it would NOT be a violation of the Tax Pledge if it simultaneously REDUCED the taxes on Nevada’s citizens by $1.077 million dollars.

In other words, the Department of Health & Human Services doesn’t get to enjoy an extra $1.077 million windfall in “found” money simply because the Legislature jacked up the fees on regulated businesses. And after speaking with Mr. Partlow on this matter Wednesday, he indicated that it was, indeed, the intention of the SAGE Commission to recommend fee adjustments as a matter of fairness, not as a vehicle for raising taxes.

The bottom line: Mr. Hansen and all other legislative candidates can support the SAGE Commission recommendations AND sign the Taxpayer Protection Pledge as long as any proposed fee adjustments, other than true user fees, are done simultaneously in a revenue neutral fashion.

Gentlemen…and ladies…start your pens!