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May 02, 2007

Taxes versus fees

When we think of government revenues, we tend to immediately think of taxes. But government also levies many fees and direct charges. N.C. State University economist Mike Walden describes the difference between taxes and fees.

“Taxes are paid for government services that are supposed to really help everyone. So the idea is … we pay taxes and they go into a pot where they are funding things like K-12 education (and) roads," says Dr. Walden, a professor of agricultural and resource economics. "Those would be two good examples of where all of us directly or indirectly benefit."

"Fees, on the other hand, are paid for government services that directly help that specific person. So, for example, a college student pays tuition, that’s a fee, and the college student obviously is getting the direct benefit of the education," he adds. "Or a driver who parks at a municipal garage pays a few because they are using that parking space. Or a household pays a fee to the city for city water.

"So the difference here is whether the person who is paying the charge directly benefits: In that case, it’s a fee. Or if they benefit as well as everyone else benefits, that’s a tax.

"Now the interesting point here in North Carolina is North Carolina is making a wider use of fees," Walden adds. "In the last 30 years, fees as a percentage of all state and local government revenue in North Carolina have risen from 25 percent of all revenue to 35 percent."

Posted by deeshore at May 2, 2007 09:30 AM