Tax choice

In public choice theory, tax choice (sometimes called taxpayer sovereignty,[1] earmarking or Fiscal subsidiarity[2]) is the belief that individual taxpayers should have direct control over how their taxes are spent. Its proponents apply the theory of consumer choice to public finance. They claim taxpayers react positively when they are allowed to allocate portions of their taxes to specific spending.[3][4][5]

Tax relationship between the state and taxpayers

The term tax sovereignty emphasizes the equal status of state and taxpayer, instead of our traditional view of the dominant position of the state in taxation. Tracing back to the legitimacy of the state, Viktoria Raritska points out that “the legitimacy of the state as a formal institution is substantiated by the people’s refusal of their freedoms and an agreement to submit to government in exchange for the protection of their guaranteed rights”.[6] The taxpayer gave up his natural liberty in exchange for the protection from the state and the provision of public services, which impels the state to take public interests as its obligation to maintain social order and citizen safety.

This mutual relationship makes taxation a link between the state and taxpayers. The taxpayer endow power to the state to ensure the satisfaction of the public interest. In fact, the taxpayer has granted the state tax sovereignty. “It is due to the fact that the taxpayer endows the state with tax sovereignty. Thus, state has not only the rights on taxation, but also the obligations, which correspond to the taxpayer's rights”.[6] Therefore, the existence of tax sovereignty is attributed to the taxpayer.

The Swedish economist Knut Wicksell’s theory also argues that "taxation should be based on the principle of value and counter-value, as if taxation was a voluntary transaction between the individual and the state".[7]

Opinions

Daniel J. Brown[1] examines tax-target plans in educational programs.

Alan T. Peacock, in his 1961 book The Welfare Society, advocates greater diversity in public services (education, housing, hospitals).

Optimal quantities of public goods

According to Vincent and Elinor Ostrom, it is possible that government may oversupply, and a market arrangement may undersupply, those public goods for which exclusion is not feasible.[8][9]

Foot voting versus tax choice

Voting with your feet and voting with your taxes are two methods that allow taxpayers to reveal their preferences for public policies. Foot voting refers to where people move to areas that offer a more attractive bundle of public policies. In theory foot voting would force local governments to compete for taxpayers. Tax choice, on the other hand, would allow taxpayers to indicate their preferences with their individual taxes.

In the Tiebout model, for example, there is costless mobility; individuals seek out a jurisdiction that provides exactly the level of output of the public good that they wish to consume. In so doing, they reveal their preferences for "local" public outputs and generate a Pareto-efficient outcome in the public sector. – Wallace E. Oates[10]

Legislative measures

Four bills involving tax choice have been introduced by the United States Congress since 1971. The Presidential Election Campaign Fund, enacted in 1971, allows taxpayers to allocate $3 of their taxes to presidential election campaigns. The 2000 Taxpayers’ Choice Debt Reduction Act would have allowed taxpayers to designate money toward reduction of the national debt.[11] The 2007 Opt Out of Iraq War Act would have allowed taxpayers to designate money toward certain social programs.[12] The 2011 Put Your Money Where Your Mouth Is Act would have allowed taxpayers to make voluntary contributions (not tax payments) to the government.[13][14] These later bills died in committee.

In popular culture

When asked what her first executive order as president would be, Ellen DeGeneres advocated a mix of voluntary taxation and tax choice, stating "you should get to choose where your money goes instead of giving it and just letting them decide, I think you should decide."[15]
In 2009, during the global financial crisis, Pope Benedict XVI advocated for a form of tax choice in his third encyclical:[16]

One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State. Provided it does not degenerate into the promotion of special interests, this can help to stimulate forms of welfare solidarity from below, with obvious benefits in the area of solidarity for development as well.

References

Brown, Daniel J. (Fall 1979). "The Case for Tax-Target Plans". Journal of Education Finance. University of Illinois Press. 5 (2): 215–224. JSTOR 40703229. For educators, these "new" values reflect a demand for taxpayer sovereignty, greater choice among educational programs, and more responsiveness on the part of educational systems.CS1 maint: ref=harv (link)
Buchanan 1963.
Lamberton, Cait (4 March 2011). "Your Money, Your Choice". Democracy: A Journal of Ideas.
Sherry Xin Li; Catherine Eckel; Philip J. Grossman; Tara Larson Brown. "Do Earmarks Increase Giving to Government?". CiteSeerX 10.1.1.415.2207. Cite journal requires |journal= (help)
Alm, James; Jackson, Betty R.; McKee, Michael (1993). "Fiscal exchange, collective decision institutions, and tax compliance". Journal of Economic Behavior & Organization. 22 (3): 285–303. doi:10.1016/0167-2681(93)90003-8.
System of Financial Law : system of tax law : conference proceedings. Masarykova univerzita. Katedra finančního práva a národního hospodářství. (1st ed.). Brno. 2015. ISBN 978-80-210-7827-7. OCLC 920663188.CS1 maint: others (link)
Johnsen, Garmann (December 1994). "The impact of the Scandinavian controversy about just taxation on public choice; a late homage to Einar Einarson". Public Choice. 81 (3–4): 323–338. doi:10.1007/bf01053236. ISSN 0048-5829.
Kennett, Patricia (2008). Governance, globalization and public policy. Edward Elgar Publishing. p. 56. ISBN 978-1845424367
Vincent Ostrom; Elinor Ostrom (2003). "Public Goods and Public Choices" (PDF). Archived from the original (PDF) on 20 May 2005.
Oates, Wallace E. (May 2006), On the Theory and Practice of Fiscal Decentralization (PDF), Lexington, KY: Institute for Federalism and Intergovernmental Relations, archived from the original (PDF) on 1 December 2008
Taxpayers’ Choice Debt Reduction Act
Opt Out of Iraq War Act of 2007
Put Your Money Where Your Mouth Is Act
Kasperowicz, Pete, "Rep. Campbell proposes tax form change to encourage donations to the government". The Hill", 18 April 2011.
Ellen DeGeneres, Mario Lopez (4 May 2016). What Ellen DeGeneres Would Do If She Were President. Extra. Archived from the original on 11 May 2016.
Benedict XVI (7 July 2009). "Caritas in Veritate 'Charity in Truth'". Vatican Publishing House. Archived from the original on 2 September 2011. Retrieved 7 July 2009.