Making Fines and Fees Less Regressive

© Josh Sager – March 2015

Fines and fees are important, yet regressive, forms of local revenue generation that disproportionately impact those who are least able to pay. Put simply, when a poor or middle class person suffers a fine or has to pay a fee (ex. getting a license reissued), they pay a much larger percentage of their income than somebody from a higher income bracket.

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For example: a person making $15,000 per year who has to pay $100 dollars to renew his license pays a significantly larger percentage of his income than somebody making $150,000 per year.

The regressivity of fines and fees is exacerbated by the fact that they tend to be targeted at the poor disproportionately more than other groups (ex. police tend to pull more people over in poor areas). This can make them extremely burdensome to lower-income families and even entire lower-income communities. In recent weeks, we have seen demonstrations of how tax-starved localities have like Ferguson Missouri have exploited their populations by loading up the most vulnerable with fines that multiply and force people into a cycle of debt. This destroys the buying power of entire families, and reduces the economic vitality of the communities that they live in.

In order to remedy this situation, I propose a shift to a progressive fine and fee structure which uses a percentage-based system to calculate the sum charged. Wherever possible, I would tie the fine or fee to the value of the object involved in the fine or the income of the person committing the offense.

For example, traffic citations can be reformed by implementing a progressive fine structure which uses the type of violation, number of offenses, and value of the car to calculate the value of the fine.

In operation, this system would look something like this: The fine for parking in a fire hydrant zone in Boston is $100 and the average car value is approximately $32,000. If the fine for parking in front of a fire hydrant were set at .3% of the value of the car (similar to an excise tax), this would make the average fine $96. A car worth significantly more than the average would generate a much larger fine (ex. a $100,000 car would be fined $300) while one worth less would generate a somewhat smaller fine.

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This program would reform traffic fines to ensure a more equitable system, while retaining a high level of revenue generation. Poor drivers wouldn’t have to worry about a single mistake breaking their budget while wealthy drivers couldn’t just ignore fines due to them being negligent compared with their means.

Several European nations, including Finland and Switzerland, have implemented a similar system for traffic violations (using personal income rather than vehicle value) for over a decade and have had positive results.

This traffic ticket reform is only one way that such a progressive fine/fee structure could be implemented to reform the current regressive system. Similar regimes could be implemented across licensing fees (both corporate and personal) using revenue or income as the principal, or inspection fees for properties using the estimated value of the property as defined by the insurer.

In theory, this shift in fines and fees could have a positive effect on the local economy. It would increase the available income for individuals in low income brackets, where individuals are most likely spend all available income on essential goods. Conversely, the spending habits of high-income individuals who receive the somewhat-higher fines are unlikely to be affected as their buying power wouldn’t be reduced.

From a local fiscal perspective, this shift is likely to be either revenue neutral or revenue positive. Fines and fees could be tailored to gather predictable amounts of revenue by setting the percentage of the fine/fee at a rate that results in revenue equal to or greater than the current revenue level (while shifting the burden up the income scale).

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The world record traffic ticket was issued to the Swiss driver of this BMW, totaling approximately $1 million for driving 186mph on the highway – that is one hell of a deterrent to future offenses.

Finally, from an incentive perspective, this type of progressive fine regime ensures that individuals feel more equal levels deterrence against bad behaviors. Instead of the rich begin able to ignore laws that carry low-value fines relative to their income (ex. a millionaire may decide to ignore parking laws because the ticket is simply insignificant to them), a progressive fine regime would ensure that the fines on the rich are significant enough to deter bad actions; conversely, a progressive fine regime would ensure that the poor are adequately dis-incentivized from fineable action, yet will not have their budgets broken by a small mistake.