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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 6

Outlines of public finance - Chapter 6

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue



71. Several Factors May Be Considered in Classifying
Revenues. It has been noted that taxes are the compul-
sory levies which are made without special reference to
the assignment of individual benefits. It is conceivable,
of course, that other sorts of payments may be made.
Some may be made with no compulsion, while with some
only a small degree of compulsion may be used. There
may be much difference in the kind and amount of public
interest in the benefit which the state gives. Many pay-
ments, moreover, give a very direct benefit to the individ-
uals making the contribution. Several of these elements
may be involved in any single payment. A contribution
may not be compulsory, yet if the service is to be enjoyed
by the individual a payment must be made. On the
other hand, an individual may not wish to pay, yet, be-
cause of particular benefits which accrue to him from the
action of the state, he is compelled to share in the cost of
the benefits. Frequently, also, the state supplies a service
which the individual may or may not use, as he chooses.
Other avenues may be open to him to get the same service.
If he accepts it from the state, however, payment must
be made. The forms of revenue suggested by these as-
pects will form the basis of most of the discussion of this
chapter. The three important forms are fees, special
assessments, and public prices. Other minor forms of
revenue will also receive brief consideration.

72. Fees Have an Important Place in Revenue Systems.
As the activities of the state expanded, and the means


by which it had been self-supporting were either given up
or disappeared, a greater amount of reliance for support
continually had to be put upon the individual. In order
to justify this in the mind of the contributor, the attempt
was usually made to show some special benefit which he
was receiving from the state because he made the expendi-
ture. While much of the revenue of the modern state is
in the nature of taxes, yet special payments for special
benefits still form an important class. One outstanding
example is the fee.

Definition of Fee. In some respects fees are similar to
taxes. In both cases the levy is primarily for the public
good. The state fixes the amount of the fee, as well as
the amount of a tax. A tax is a compulsory levy, while the
fee is largely so. The outstanding difference, however, is
that, while the payment of the fee does aid in carrying on
a state function for the common good, the state at the
same tune gives some special benefit to the individual
who makes the payment. A fee might be defined, then,
as a semicompulsory levy for some benefit, undertaken pri-
marily for the public good, which also confers some benefit
on the individual who makes the payment.

Examples of Fees. Examples of fees are numerous.
The varied use of court fees at once presents itself to mind.
Courts are maintained for the purpose of establishing
justice, yet the individual who avails himself of the service
receives a benefit and is charged a fee. The recording of
deeds and mortgages, and the issuing of marriage licenses,
are undertaken for the public good, yet a charge is made
to the individual who records a deed or mortgage or who
secures a license.

Many of our so-called taxes are simply fees. Most
license taxes are of this nature. The members of various
groups of labor must secure licenses to follow their trade
legally. Such are taxicab drivers, teamsters, engineers of
various sorts, and peddlers. The state has recognized
that the welfare of society demands some regulation of


these occupations. It has been found that the individual
under regulation has been willing to pay for the privilege
of carrying on the activity. The sale of liquor is an exam-
ple of an industry which was extensively regulated by the
use of the license or fee payments. In such cases the pro-
prietor of the business is often anxious that the fee be
high, so that his marginal competitors be driven out of
business and leave the situation more nearly a monopoly.
Under such a condition those remaining in business may
more than recoup themselves for the fee paid, by the in-
creased prices and trade. It is to the social interest to
keep track of the owners of motor cars, and a license must
be secured for which a fee is charged before it becomes
legal to operate a car. Dog taxes are of the same nature.
A profusion of worthless dogs is recognized as a nuisance,
and an attempt is made to keep down numbers by levying
a tax upon every dog.

A group of persons may wish to be recognized legally
as an individual, and a charter is granted by the state
which makes them a corporation. For this service a fee
is charged which varies in the different states. Numerous
other examples of fees might be given, and many others
will occur to the reader. The ones given, however, serve
to show the wide extent of the use of fees, and the various
purposes which they serve.

Fees Semicompulsory. These examples illustrate the
semicompulsory nature of the fee payment. It can be
seen that, while the levy is determined by the public
authority, it is only paid when the individual avails him-
self of the benefit with which the fee payment is con-
nected. That is, if the individual does not avail himself
of the benefit no payment is made, but the payment is
compulsory if the benefit is used. When the state enacts
a statute that every driver of a taxicab must secure a
license, for which a fee will be charged, it does not thereby
compel any individual to become a driver, but if he secure
the privilege to enter this form of obtaining a livelihood


he must pay the fee. Neither does the law compel any
individual to own a dog, yet if anyone desires to own a
dog he must pay for the privilege. Again, a group of in-
dividuals could enter business under the partnership form
of organization, but if they want the privilege of existing
and being known as a corporation, they must pay a fee
to the state for granting the privilege.

The degree of compulsion varies greatly, then, accord-
ing to the desirability or necessity of the service which is
undertaken. It is sometimes said that in this sense taxes
are not compulsory. For example, if a man does not want
to pay taxes on his farm he may sell the farm; if he does
not want to pay them on income he can cease getting an
income. In the first case, the tax on the land would be
paid no matter how many sales occurred, and in the second
the giving up of an income is highly improbable. The
degree of compulsion in all taxes is not the same, neither
is it for fees. It may be true that some fees are more
compulsory than some taxes, yet in general fees represent
a less compulsory form of revenue.

73. The Characteristics of Fees Vary. The revenue re-
ceived from the payment of fees does not always occupy
the same place in fiscal systems. It may be set aside for
some specific purpose, or simply be placed in the common
fund to help meet general expenditures. The dog tax, for
example, is commonly set aside to pay damages to sheep
owners for the destruction wrought to their flocks by
dogs. Some states use all funds secured from licensing
automobiles for building or improving highways. A com-
mon earlier use of the fee was to remunerate the incum-
bent of the office through which the fee was secured. This
system proved to be very unjust, because there was fre-
quently no relation between the amount of labor of the
various officials and the remuneration which came to
them. As population increased, moreover, the amount of
services to be paid for in this way expanded to such an
extent that the resulting remuneration became unreason-


ably large. The recent tendency has been to put the re-
turns from fees into the general treasury and pay the
official a fixed salary. In this way an adequate compensa-
tion for services rendered is much more nearly accom-

No general statement can be made as to the relation
between the amount of the fee and the cost of rendering
the service. Some have contended that any payment
which exceeds the cost of rendering the service automati-
cally loses the nature of a fee and becomes a tax. This
would perhaps be true of services of a more or less com-
mercial nature. When, for example, such charges are
made for the use of a postal system that no net revenue,
or perhaps a deficit accrues to the government, the charge
is evidently a fee. The primary purpose in view is social
progress education, enlightenment, ease of communica-
tion, and similar considerations. These are the justifica-
tions for undertaking the service. If, however, the rates
have been so fixed as to lessen the amount of service in
order to obtain a large net return that is, the idea in
undertaking the sendee has been to get revenue then
the charge loses the nature of a fee and partakes more of
that of a tax or public price.

The United States postal services, as well as the con-
duct of many municipal water plants, furnish examples
of commercial enterprises which have adhered to the fee
basis of charge. The French tobacco monopoly is an
example of such an enterprise in which the purpose of
securing revenue predominates. On the other hand,
many fees exceed the cost of providing the service, or
there is no attempt made to compare the cost with the
exaction which is made. Most of the court fees are exam-
ples of this kind. Such services often require simply the
filling out of blank forms, for which a nominal fee is
charged. The chartering of a corporation, and the grant-
ing of various kinds of permits, are other examples of this
type. The service is undertaken primarily for the common


good, the idea of revenue is secondary, and the arbitrary
fee which is exacted is paid because the individual receives
a direct benefit.

Fees and the Police Power. An increase in the use of
fees has accompanied the extended use of the police power.
This power is that sovereign right of the commonwealth
to protect the economic, physical, and moral welfare of
its citizens. As former individual liberties become more
and more restricted for the good of the group, the system
of granting licenses becomes more prevalent. The size
of the fee is often governed by the amount of repression
which is desired. If the regulation have in view simply
to test efficiency, or have on record the members of a
particular trade, the fee will likely be comparatively low.
The granting of licenses to teachers, engineers, teamsters,
and the like would likely be of this nature. When the
institution upon which the fee is levied is harmful, and
intended to be repressed, the fee may be large. The fees
that have been paid by liquor establishments, dance halls,
and poolrooms indicate this tendency.

74. Fees Have Held an Important Place in the Fiscal
Systems of European Countries. The importance of the
use of fees immediately following the feudal regime has
been indicated. It must not be inferred, however, that
this was the first tune they formed a part of fiscal systems.
Early Greece and Rome furnish numerous examples of
fee payments, the nature of which is remarkably modern.
Various classes of court fees were used in both countries.
Fees for the use of publicly maintained utilities, such as
harbors, streets, and roads, were extensively used. Fees
were frequently used in connection with religious priv-
ileges. The amount of revenue which could be secured
was often the factor which determined the size of the fee.

Fees in England. The modern fees in England are used
for the purpose of regulation and for securing revenues.
Practically from the beginning both of these motives have
been present. The revenue aspect is seen in the fees


which were charged for granting monopolies, or for the
licenses to hunt and fish upon the public domain. The
numerous fees which were used to regulate the crafts and
guilds illustrate the other type. When institutions arose
which called for state regulation, the regulation was at
first undertaken without charge. Fees were soon invoked,
however, for the granting of licenses, and the tendency
has been to make them heavier. The best example of
this type is the fee for granting liquor licenses. Important
sources of revenue are the fees from harbors, bridges,
roads, lighthouses, and markets. The court fees are also
numerous and lucrative. The whole tendency has been
to fix the fee at the place where the highest revenue would
be secured.

Fees in France. France has used fees, perhaps, even
more extensively. The primaiy motive has usually been
revenue, although there are some examples of where the
fee charged is less than the cost of the service. The
amount of many fees has been raised and lowered until
the point which will yield the highest net return has been
found, and here it remains. The use of fees has been a
remarkably successful part of the fiscal system, owing
largely to the highly efficient administrative machinery.
Examples of the more important fees which are used in
France are those for the use of public utilities and educa-
tional institutions, for the granting of patents and hunting
and liquor licenses, for permission to erect signs on public
property, for registering legal papers, and the postal fees.

75. Fees Have Been Used Extensively in the United
States. The American colonies, as might be expected
from the practices of the Mother country, made a wide
use of fees. Most of the Colonial officials were remuner-
ated for their services by the fees which they collected.
The use of money was developed to only a limited extent,
consequently most payments were made in products.
Much fraud was practiced by the officials in order to in-
crease the payments, Simple transactions wer Q often


divided into a number of parts, and a fee was charged for
each part. Few fees for granting licenses were found,
since comparatively little regulation was needed. It would
have been surprising, since fees played such an important
place in the colonies, had they not been used extensively
by the Federal and state governments when they were
formed. From the beginning fees have held an important
place for various purposes in these governmental units.

One of the first instances of the use of fees by the Fed-
eral government was in connection with the granting of
patents. The salaries of the Patent Office officials were to
consist of the fees collected. They were so small, however,
and the number of patents secured in the early years were
so few, that it became necessary to increase the fees.
Later the fees were paid directly into the treasury, and the
officials were placed on a fixed salary basis. Practically
the same has been true of the copyright fees.

All sorts of fees have been used in connection with ship-
ping, such as for handling imports, and for licensing ves-
sels, and the numerous maritime officials. At first these
fees constituted the remuneration of the officials, but
changes were gradually made to a salary basis. The same
has been true of the fees connected with the consular and
diplomatic service and courts. A large part of the fees
of the states and local governmental units are for the
granting of some privilege, or for performing some in-
spection. A large number of court fees are also found.
In most cases the payment goes into the treasury and the
official is paid a fixed salary.

Payment by Salary. One tendency stands out promi-
nently in this development of the use of fees to give
them up as a basis of payment to officials. In a progressive
and changing country it is impossible to frame a schedule
which will work justice to all officials. Economic condi-
tions may change quickly, so that the operations requiring
a fee payment may increase many fold in a few months
or may totally disappear.. The payment of officials by


fees, who were disposing of the public lands, illustrates
the difficulty. Some did " a land office business " and were
more than satisfied, while others received so little as to
make it unprofitable to maintain the office. These diffi-
culties, together with the temptation to fraudulent acts
to create more fees, has been responsible for the wide
adoption of the fixed salary as a basis of payment. Nu-
merous examples may be found, however, especially in
the local political units, where the fee is retained by the
official as a part or all of his salary.

76. Fees Have Important Social and Political Aspects.
The importance of the indirect social and political
effects of the fee system must not be overlooked. It is
especially marked where the salary of the official is the
fees collected. Under such conditions systems of regula-
tion are likely to defeat their own ends. For example, it
has long been the custom to require persons contemplating
marriage to secure a license. To do this the requirements
of the state are expected to be fulfilled, and it is the busi-
ness of the official to see that such is the case. If, however,
the fee for granting the license is to go to the official, age,
relationship, or whatever the requirement may be, might
be easily set aside in order to get the fee. The same situa-
tion is more or less true of all regulative fees used in this

Sheriffs, police, and city judges have often been paid
on a fee basis, with the expectation that they would be
more alert to duty. If paid so much per arrest it is likely
that the policeman will be more alert to find criminals
it will be to his interest to develop crime rather than to
prevent and repress it. The attitude of other officials
will be much the same when their remuneration is the fee.
The judge will be interested in trying more cases, the sheriff
in having more commitments to his keeping. Each official
act means a fee, hence a larger income. It is to the in-
terest of the officials to increase crime rather than to pre-
vent it. Examples are numerous of where the sheriff of
one county has sought to exceed the hospitality of the
sheriffs of adjoining ones in order to obtain more fees for
keeping vagrants. A tramp was always welcome, and the
longer he stayed the bigger the fee.

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