Benefit Taxes and User Fees in Theory and Practice

As alternatives to more general taxes based on broad measures of each taxpayer's economic capacity, benefit taxes and user fees are praised by some for promoting economic efficiency, government accountability and tax fairness, and condemned by others as reactionary, regressive, and distributively unjust. This paper adopts a more even-handed approach to benefit taxes and user fees, regarding these sources of revenue as preferable to general taxation for specific purposes but inferior to general taxes for other purposes. Part II provides a theoretical framework for analyzing benefit taxes and user fees, defining these levies in contrast to general taxes, examining theoretical arguments for and against government reliance on benefit taxes and user fees, considering the appropriate role of benefit taxes and user fees as methods of government finance, and reviewing the manner in which these levies should be designed in order to achieve the purposes for which they are best suited. Part III considers benefit taxes and user fees in practice, surveying the extent to which governments rely on these levies in Ontario and other jurisdictions, and examining the current and potential application of benefit taxes and user fees to finance various categories of government expenditures. Part IV summarizes the argument of the paper and offers general conclusions.