Customs User Fees Extensions: How Honest Budgeting Can End a 35-Year-Old Gimmick
The $550 billion Infrastructure Investment and Jobs Act (IIJA) uses many budgetary gimmicks to offset some of its costs. Both NTU and NTU Foundation have analyzed dubious pay-fors in the package, and among the many problematic policies is the extension of customs user fees. “Offsets” associated with extension of these fees are largely a fiction based on gamesmanship of federal budget scoring conventions, and yet Congress has repeatedly resorted to using them to make budget math work on unrelated bills. In fact, no fewer than five pieces of legislation currently before Congress use customs fee extensions to artificially boost receipts.
These fees are currently in effect through the end of September 2030. Although the bulk of IIJA’s spending occurs over the next few years, the plan extends the user fees for an additional year -- nine years from now -- to “offset” $6 billion. However, the customs user fees are already dedicated to partially cover the cost of customs enforcement at the border, which suggests that any additional uses for the dollars are effectively double-counting.
Most of the customs user fees were originally established in 1986 and had no expiration date. Later that year, Congress enacted a law that added a new customs fee and set expiration dates for them all. Since then, over thirty different laws, ranging from music royalties to the recently enacted America Rescue Plan Act (ARPA), have included user fee extensions to offset spending. The extensions vary from as short as one week to as long as five years.
Congress should end this charade and change the scorekeeping rules so that the user fees are assumed to extend in the baseline. Fees that are intended to offset a government function like customs enforcement should not be viewed as fungible dollars to make budget math work on large spending packages like the infrastructure bill.
Budgetary Treatment of User Fees
User fees are intended to cover the cost of specific services. These are classified as offsetting receipts and are recorded in the budget as negative outlays, i.e., savings. As the Congressional Budget Office (CBO) defines them, offsetting receipts are “funds collected ... in businesslike or market-oriented transactions.” These are distinct from tax revenues, which result from the “government’s exercise of its sovereign or governmental powers.” For example, entrance fees are used to finance the operation of the National Parks Service and the amounts raised are recorded as offsetting receipts because potential visitors can opt to go elsewhere if they do not wish to pay the fee.
The 35-Year History of Customs User Fees
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), which was actually enacted in April of 1986, established custom user fees. This set fees on most passengers, vessels, trucks, and aircrafts entering the United States. Initially, the fees had no termination date.
Later that year, the Omnibus Budget Reconciliation Act (OBRA) of 1986 added an additional Merchandise Processing Fee (MPF) assessed on the value of imported merchandise, excluding duty, freight, and insurance charges. OBRA also set all the customs user fees to expire on September 30, 1989.
In the debate of that law, the bill’s sponsor Representative Dan Rostenkowski (D-IL) clearly explained to his colleagues that these fees “are intended solely to cover the costs of maintaining the operations of the Customs Service.”
In 2019, the customs user fees brought in $937 million, covering about 80 percent of the customs expenses that are eligible to be financed from the fees. The effects of the COVID-19-related recession impacted these receipts, decreasing them to $665 million in 2020 and covering only 61 percent of eligible costs.
Because of the receipts they generate, customs user fees quickly became a popular pay-for. Lawmakers started extending these fees the very next year after the initial expiration date was established. The Omnibus Budget Reconciliation Act of 1987 extended both sets of fees for an additional year. Since then, an additional 34 laws extended either one or both sets of the user fees.
The table below lists the laws that enacted the customs user fees and each of the subsequent laws that have extended them. Many of the laws pertain to trade issues, but the list also includes general omnibus appropriations, the Bipartisan Budget Acts of 2013, 2018, and 2019 that increased the Budget Control Act of 2011’s spending caps, highway funding, agricultural funding, an update of music copyright laws, and ARPA from earlier this year. The length of the extensions enacted range from as little as one week to as long as five years. And most of the extension dates occur eight to ten years out from the date of each enactment.
Customs User Fees: Establishing and Extension Laws | |||||
Title | Date Enacted | Merchandise Processing Fees Enacted Expiration Dates (19 U.S.C. 58c(j)(3)(A)) | # of Days Extended | Customs User Fees Enacted Expiration Dates (19 U.S.C. 58c(j)(3)(B)(i)) | # of Days Extended |
Consolidated Omnibus Budget Reconciliation Act of 1985 | 4/7/1986 | N/A | N/A | (Established with no expiration date) | N/A |
Omnibus Budget Reconciliation Act of 1986 | 10/21/1986 | 9/30/1989 | 730 | 9/30/1989 | 3309 |
Omnibus Budget Reconciliation Act of 1987 | 12/22/1987 | 9/30/1990 | 365 | 9/30/1990 | 365 |
Customs and Trade Act of 1990 | 8/20/1990 | 9/30/1991 | 365 | 9/30/1991 | 365 |
Omnibus Budget Reconciliation Act of 1990 | 11/5/1990 | 9/30/1995 | 1461 | 9/30/1995 | 1461 |
Omnibus Budget Reconciliation Act of 1993 | 8/10/1993 | 9/30/1998 | 1096 | 9/30/1998 | 1096 |
North American Free Trade Agreement Implementation Act | 12/8/1993 | 9/30/2003 | 1826 | 9/30/2003 | 1826 |
To extend the Temporary Assistance for Needy Families block grant program, and certain tax and trade programs, and for other purposes | 10/1/2003 | 3/31/2004 | 183 | 3/31/2004 | 283 |
Military Family Tax Relief Act of 2003 | 11/11/2003 | 3/1/2005 | 335 | 3/1/2005 | 335 |
American Job Creation Act of 2004 | 10/22/2004 | 9/30/2014 | 3631 | 9/30/2014 | 3631 |
To extend the authorities of the Andean Trade Preference Act until February 29, 2008 | 6/30/2007 | 10/14/2014 | 14 | ||
Joint resolution approving the renewal of import restrictions contained in the Burmese Freedom and Democracy Act of 2003, and for other purposes. | 8/1/2007 | 10/21/2014 | 7 | ||
To extend the trade adjustment assistance program under the Trade Act of 1974 for 3 months | 9/28/2007 | 10/7/2014 | 7 | ||
United States-Peru Trade Promotion Agreement Implementation Act | 12/14/2007 | 12/13/2014 | 53 | 12/13/2014 | 67 |
Andean Trade Preference Extension Act of 2008 | 2/29/2008 | 12/27/2014 | 14 | 12/27/2014 | 14 |
Food, Conservation, and Energy Act of 2008 | 6/18/2008 | 11/14/2017 | 1053 | 9/30/2017 | 1008 |
To extend the Andean Trade Preference Act, and for other purposes | 10/16/2008 | 2/14/2018 | 92 | 1/31/2018 | 116 |
Approving the renewal of import restrictions contained in the Burmese Freedomand Democracy Act of 2003, and for other purposes. | 7/28/2009 | 2/7/2018 | 7 | ||
To extend the Generalized System of Preferences and the Andean Trade Preference Act, and for other purposes. | 12/28/2009 | 5/14/2018 | 89 | 6/7/2018 | 120 |
Haiti Economic Lift Program Act of 2010 | 5/24/2010 | 11/10/2018 | 180 | 8/17/2018 | 71 |
United States Manufacturing Enhancement Act of 2010 | 8/11/2010 | 12/10/2018 | 30 | 11/30/2018 | 98 |
Claims Resolution Act of 2010 | 12/8/2010 | 9/30/2019 | 294 | 9/30/2019 | 304 |
Omnibus Trade Act of 2010 | 12/29/2010 | 1/7/2020 | 99 | 1/14/2020 | 106 |
United States-Korea Free Trade Agreement Implementation Act | 10/21/2011 | 8/2/2021 | 573 | 12/8/2020 | 339 |
African Growth and Opportunity Amendments | 8/12/2012 | 10/22/2021 | 81 | 10/29/2021 | 325 |
Bipartisan Budget Act of 2013 | 12/26/2013 | 9/30/2023 | 708 | 9/30/2023 | 701 |
Highway and Transportation Funding Act of 2014 | 8/8/2014 | 9/30/2024 | 365 | 9/30/2024 | 365 |
Trade Preferences Extension Act of 2015 | 6/29/2015 | 7/7/2025 | 280 | 9/30/2025 | 365 |
Trade Facilitation and Trade Enforcement Act of 2015 | 2/24/2016 | 9/30/2025 | 85 | ||
Consolidated Appropriations Act, 2017 | 5/5/2017 | 1/14/2026 | 106 | ||
Bipartisan Budget Act of 2018 | 2/9/2018 | 2/24/2027 | 406 | 9/30/2027 | 730 |
Consolidated Appropriations Act, 2018 | 3/23/2018 | 7/21/2027 | 147 | ||
Miscellaneous Tariff Bill Act of 2018 | 9/13/2018 | 10/13/2027 | 102 | ||
Orrin G. Hatch-Bob Goodlatte Music Modernization Act | 10/11/2018 | 10/20/2027 | 7 | ||
Bipartisan Budget Act of 2019 | 8/2/2019 | 9/30/2029 | 711 | 9/30/2029 | 731 |
Extension of the Caribbean Basin Economic Recovery Act | 10/10/2020 | 10/21/2029 | 29 | 10/21/2029 | 29 |
American Rescue Plan Act | 3/11/2021 | 9/30/2030 | 344 | 9/30/2030 | 344 |
The popular pay-fors are also present in a variety of other bills this year. In June, the Senate passed the $250 billion United States Innovation and Competition Act which would extend the fees through August 7, 2031. CBO’s analysis of the bill only included changes in direct spending and did not note the offsetting receipt estimate.
The Invest in Child Safety Act (S. 223 and H.R. 807), introduced before passage of ARPA, would have reset the expiration from October 21, 2029 to August 31, 2030 as an offset to establishing a new Office to Enforce and Protect Against Child Sexual Exploitation. And H.R. 4037, the Trade Preferences and American Manufacturing Competitiveness Act of 2021, would extend the fees through June 21, 2031.
In total, five pieces of legislation currently before Congress purport to extend customs user fees in order to generate additional offsetting receipts to help improve budget math. Generally, this is little more than manipulation of out-year budget numbers for the purpose of funding programs unrelated to customs or border enforcement issues.
Recommendations
Congress should end the use of this budgetary gimmick once and for all. Lawmakers should consider enacting a point of order against the use of offsets that only appear in the ninth or tenth budget year of the underlying bill, especially in cases where the spending is front loaded.
Furthermore, Congress should consider changing budget rules so that customs user fees are scored on a so-called “current policy” baseline instead of a “current law” baseline. A current policy baseline provides more realistic budget projections that are based on the policies that Congress tends to enact, rather than based on a strict reading of current law. Without reforms, some Members of Congress will continue to use this budget gimmick in perpetuity in order to facilitate big spending packages. Instead of allowing the practice to continue, budget-conscious Members should advance changes that ensure these fees are included permanently in the baseline to prevent the use of this ploy.
Conclusion
Lawmakers love to say that their spending plans are paid for, yet the offsets are all too often composed of misleading our outright dishonest budget tricks like the extension of customs user fees. With gimmicks like these it is no wonder that in year after year, Congress runs up the deficit. Responsible lawmakers should reform the rules to help promote honesty in budgeting regarding the use of customs user fees.