Fee Nix Envy

“Look, junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in. I know how unfair it feels when a company overcharges you and gets away with it.” 

 President Joe Biden, State of the Union address, February 7th.

How many hidden fees can I charge, let me count the ways? Baggage fees, seating fees, transfer and cancelation fees, COVID fees, resort fees, handling fees, venue fees, fuel price fees, etc., etc., etc. Hey, so what? As Calvin Coolidge once said, “The business of America is business.” And businesses have been accorded privileges the rest of us can only dream of. With some recent “inflation Reduction Act” floors, US corporations pay taxes as a vastly reduced rate than virtually all of us. Fund managers get a pretend “investment” benefit (without having to make one) under an archaic “carried interest” exception in our tax code. Some corporate practices, like fracking, avoid several major environmental rules. Depreciation and amortization deductions, specialized tax credits, etc. often subsidize US companies in ways individuals could never equal.

In my world of film, television and digital media, talent and right holders who used to generate a piece of the upside from their very successful contribution are relegated to an impenetrable jungle of fixed fees and arcane bonuses, representing a small fraction of pre-streaming upside practices. Effectively, these creatives are paying for the business errors of those running these streaming companies under models that simply do not work.

All of this comes down to a battle between “what we can get away with” and “transparency.” How many of us, including lawyers, really read the pages of “privacy policies” and “terms of use” that we get when we wish to access a Website? And if we do not like these little forays into the absurd, how can we object? Oh, we can’t?

In President Biden’s State of the Union speech, he took on this increasing proclivity of American companies, particularly in the travel and transportation industry, to charge a complex array of consumer “sneaky fees,” noting hotels that were not resorts charging “resort fees.” You can also see these ubiquitous fees in car rentals, internet transactions, concert fees, and “but wait, there’s more” television sales. How many of us, in a distracted and time-impaired world, ever stop to understand what these charges really are, and even if we do spot them, what we can do about them?

Biden noted that federal legislation eliminated the practice of hospitals charging “surprise fees” for patients accessing emergency services. The Consolidated Appropriations Act of 2021 contains many provisions to help protect consumers from surprise medical bills, including the No Surprises Act. Biden’s goals include imposing a similar ban on these consumer “sneaky fees.” David Leonhardt, writing for the February 9th New York Times takes this nasty, consumer-as-sucker practice on: “Sneaky fees have become a big part of America’s consumer economy.

“Hertz charges almost $6 a day simply for using a toll transponder in a rental car. Marriott and Hilton add nightly “resort fees” to the bill even at hotels that nobody would consider to be resorts. American, Delta and United list one airfare when you first search for a seat — and then add charges for basic features like the ability to sit next to your spouse.

“Ticketmaster is especially aggressive about imposing fees, as I experienced recently while buying two tickets to a football game. When I initially selected my seats on Ticketmaster’s online stadium map, they cost $48. The bill at checkout was more than one-third higher — $64.40…

“The market solution to sneaky fees seems straightforward. When Marriott starts charging $50 nightly “resort fees,” Hilton can call out its competitor and try to steal Marriott customers. And some companies do take this approach: Southwest Airlines advertises a “Bags Fly Free” policy, an obvious swipe at rivals.

But the mushrooming number of fees has made clear that competition does not usually eliminate the practice. Why not? Academic research has suggested that there are two main reasons… First, human beings are not the efficiently rational machines that economic theory pretends they are. An entire branch of the field, behavioral economics, has sprung up in recent decades to make sense of our limited attention spans.

“If you are familiar with the best-selling book ‘Thinking, Fast and Slow,’ by Daniel Kahneman, you will recognize these ideas. We lead busy lives that keep us from analyzing every purchase, and we get distracted by salient but misleading information (like a low list price). Big companies, with the resources at their disposal, have learned to take advantage of these limitations. The economist Richard Thaler refers to practices like these as “sludge,” the evil counterpart to nudges that use behavioral economics to improve life.

“True, one company could call out another for using sludge. But doing so often requires a complex marketing message that tries to persuade people to overcome their psychological instincts (like the appeal of a low list price). For that reason, Hilton can probably make more money by charging its own sneaky resort fees than by criticizing Marriott’s…

“The second major reason is monopoly power. In some markets, consumers don’t have much choice. Ticketmaster’s fees outrage many people. But I didn’t have any choice when I bought those football tickets. There was no rival service selling them.

“In recent decades, many American industries have become more concentrated, partly because Washington became more lax about enforcing antitrust laws. Thomas Philippon, an N.Y.U. economist, has estimated that increased corporate concentration costs the typical American household more than $5,000 a year.” We hate it, but individuals do not have the clout to change these practices. The Republican mantra is to cut away anything that is attempting to curtail the pursuit of business profits. Regulation is their sworn enemy.

The Trump administration disemboweled federal consumer protection agencies by defunding them and appointing pro-business agency heads. The Environmental Protection Agency was defunded to the bone in anticipation of closing it altogether. American corporations got a federal tax cut from 35% to 21%, resulting in massive federal deficits for a program that promised to pay for itself… but never did. The GOP is fighting hard to eliminate that IRS budget increase of $80 billion, passed by Congress last year under the Inflation Reduction Act, which would be used to target particularly expensive and time-consuming audits of the mega-wealthy and big corporations. The GOP would rather let an understaffed IRS keep squeezing the easy-to-squeeze little guys… leaving the big boys alone.

I’m Peter Dekom, and it’s time that the “We the People” needs to be resurrected… as our Found Fathers intended.