In Defense of “Junk” Fees
My title is a bit misleading. I will, unapologetically, defend fees. I will also defend many of the fees that are unjustly being labeled “junk” fees. But mostly I will explain why small fees exist and why governments going after them, as the Biden administration has made a priority of doing, is an exercise that in many cases will lead to costlier outcomes for consumers.
A few preliminaries up front. The “Inflation Reduction Act” was a spending program that had little to do with reducing inflation, the PATRIOT Act was far from patriotic, and “junk fees” are mostly not junk at all. The government’s use of the term “junk” to mislead, in fact, has precedent in conjunction with attempts to disparage the then-new high-yield bond market in the 1980s. The “junk bond” market, despite the attempts by established Wall Street firms and the government’s attempt to smear it, has proven an indispensable financial market for almost four decades, contributing to economic growth and the creation of millions of jobs during that time.
“Junk fees” are even more easily defamed. They tend to be several, small, and added to the bottom of an invoice or receipt, feeding the understandable suspicion that they’ve been snuck into a bill. Upon seeing them, many consumers get the idea that they’re being nickeled-and-dimed, with firms taking an extra slice of lucre on top of the pound of flesh they’ve already extracted.
Yes, some fees are exorbitant, and some are even underhanded. But there are two major reasons why additional layers of fees exist in commercial transactions. First, because many local, county, state, or federal bureaucrats or state agencies have a greedy hand in what should be private individual transactions. Many fees are stealth taxes. For a full and complete exposition of this, examine the bottom of the most recent airline ticket you’ve purchased to see truly junk fees cavorting in the wild.
But in truth, most of the numerous small fees being disparaged by the government are an unavoidable consequence of specialization. A wide variety of disparate business activities need to converge to produce the products and services that consumers want and are willing to pay for.
Take, for example, a concert ticket. On top of the established admission price, there are service/order processing fees, which pay for the shipping and handling of the ticket. Then, frequently, there are “resale service fees,” which represent a portion of the sales tax that retailers retain to cover state sales taxes. Facility charges are collected by ticket sellers for the venue where a concert or performance is held. And, of course, there are sales taxes. Two of those four fees are associated with political grabbiness, one with delivery, and one to pay the showplace itself. No one works for free, and other than the taxes, none of those seem particularly egregious. There may be more fees associated with booking agencies, security firms, insurance, and other such interests. (Thank you, lawyers.)
Whether it’s a massive international ticketing company or a mom-and-pop shop reselling tickets, your preferred ticket vendor has little interest and even less expertise in booking acts, owning and maintaining entertainment arenas, or operating delivery services on the scale that major events require. Your favorite band does not own an insurance company, and probably doesn’t want to. It takes a variety of talents and vastly dispersed knowledge – indeed, expertise – to combine resources into complex vendibles sought by consumers.
If the costs associated with these small fees are not so small anymore – they are definitely rising – sternly written letters of opprobrium would be better directed to the twelve members of the Federal Open Market Committee of the Federal Reserve in Washington, DC than to government regulators or your local congressman.
It also bears mentioning that there is an accounting element at work, since with many diverse business entities producing a product or service in exchange for proportionally small fees, cost controls and tracking for tax purposes is critical.
Despite what the government might want Americans to believe, most so-called junk fees will not be removed. They can’t be, not without completely eliminating the availability of the associated good or service. More likely, a government action against “junk fees” will result in the additional fees being bundled into a single, overall price, whether it’s a concert ticket, a new car, or some other item. Ironically or not, the opaqueness of blending all of those fees together makes it much easier to raise any or all of those fees over time. At least now, those fees are observable. If, once lumped together into one price those overall prices rise, the junkiest of junk fees – sales taxes – will rise.
An inveterate conspiracy theorist would conjecture that a government effort to make pricing less visible through “bunching” might serve not only to suppress criticism over inflation, but to obscure rising prices, constituting a huge gift to the private sector. (I am not a conspiracy theorist.)
None of this invalidates the notion that, occasionally, a fee being charged is an unnecessary, shameless cash grab – junk indeed. Private consumer advocacy groups are well equipped to find and expose them. Overwhelmingly, though, the incremental fees associated with the great plethora of goods and services at our fingertips are an essential prerequisite to satisfying consumer demand. Their abolishment, whether by prohibition or concealment via aggregation, will prove consequential.
(An addendum: I just booked a flight to attend an upcoming economics conference. As always, I closely scrutinized my receipt and itinerary. The itemized cost includes my airfare, with the following additional charges:
US Transportation Tax
(a tax from a foreign government)
September 11th Security Fee
US Immigration User Fee
(another foreign nation fee)
US Custom User Fee
US APHIS User Fee
(foreign nation “departure tax”)
US Passenger Facility Charge
Almost 20 percent of the total purchase cost is rooted in state pilferage. Now those are some junk fees!)