Monday, January 22, 2018
Erin Scharff (Arizona State) presents Green Fees: The Challenge of Pricing Externalities under State Law at BYU today as part of its Tax Policy Colloquium Series hosted by Cliff Fleming and Gladriel Shobe:
Policymakers at the state and local level are increasingly interested in using market-based pricing mechanisms as regulatory tools. At the state level, Massachusetts, Rhode Island, and Washington have recently considered state-level carbon pricing, while California is moving forward with its own cap-and-trade program. At the local level, municipal governments are increasingly turning to stormwater remediation fees to pay for the treatment of municipal runoff required by the Clean Water Act. And Philadelphia, Berkeley, and Seattle all recently joined Chicago and impose a soda tax on high-caloric beverages.
These regulatory programs are all inspired by the insight of English economist Arthur Pigou, who suggested governments could price social costs into market transactions by imposing a tax. Such policies, however, are frequently subject to state court litigation challenging them as unlawful taxes. State law restricts both state and local governments’ ability to enact taxes, but similar restrictions are often not in place to limit the enactment of regulatory actions or user fees. Unfortunately, state courts have struggled to appropriately classify these fees under existing state law doctrines.
Such legal instability makes state and local governments less likely to adopt such policies, even when there are strong arguments for doing so. This Article takes a critical look at current state law governing the distinction between user fees and taxes. This Article then argues that Pigovian levies do not fit neatly into either legal category under the definitions in place in most states. As a result, this Article proposes reforms to state user fee definitions that would both better regulate Pigovian taxes and bring needed clarity to user fee doctrine.