Issue #20, Spring 2011

Your Money, Your Choice

Rethinking Taxes: Proud to Pay

Cait Lamberton
To read the other essays in the Rethinking Taxes symposium, click here.

Progressives have a problem: Voters detest taxes, and Republicans want to give them more tax cuts. Because Democrats believe in using government to promote the public interest, they will never “out-tax-cut” the right. So how can progressives win over the public when they’re always on the wrong side of the question of who’ll cut taxes more?

Here’s one idea: Promote the concept of tax choice. What exactly is tax choice? Simply put, it is a policy that would permit taxpayers to allocate a percentage of their income taxes to any portion of the discretionary federal budget. In a tax choice program, a taxpayer who wishes to support public education, for example, could send some of her income tax dollars specifically to that part of the federal budget, while a taxpayer who feels strongly about the military could allocate a portion of his income tax payment accordingly. (Ethan Porter proposed a variation of this idea—allowing taxpayers to direct additional tax money to programs of their choice when filing their tax returns—in “Can’t Wait ’Til Tax Day!” in the Spring 2010 issue of Democracy.)

According to experimental research I’ve conducted looking into the efficacy of tax choice, permitting taxpayers to allocate even a small percentage of their income tax to the programs of their choice generates significant increases in taxpayer satisfaction. Further, taxpayers’ allocations reveal a strong preference for more butter and fewer guns. Thus, allowing taxpayers some choice in where their taxes go may slowly shift the nation’s spending priorities toward more socially productive investments.

Beyond these effects, tax choice enables individuals to compete more effectively with moneyed interests in policy-making. The politics of tax choice are appealing as well, drawing on both libertarian and conservative themes of individual empowerment and agency, as well as the progressive belief in good government. Tax choice would resonate across a broad political spectrum, and directly engage citizens in the administration of the republic.

Toxic Taxes

To understand how tax choice can advance progressive goals, it’s important to understand why people hate paying taxes so much in the first place. Psychology offers a number of explanations. First, tax payments involve distant goods and services that are experienced at a remove from the payment. Further, the benefits of tax dollars are highly diffuse and abstract. Many benefits are never directly seen by the individual taxpayer. So with taxes, one of the things that usually motivates people to open their wallets is notably absent: At the time of payment, we don’t see what we’re getting in return.

Still, if this were the only problem with paying taxes, we’d have an easy fix. Just show people what their tax dollars pay for and, assuming that any of those things are valuable, they should be happy to pay. In fact, the taxpayer receipt proposed in this symposium would likely create some improvements in taxpayer satisfaction.

However, there’s another major reason why people loathe taxes that would not be addressed by tax receipts: Taxes are compulsory, and Americans hate being told what to do. The discomfort we feel when our freedom is constrained is called psychological reactance, and it plays a big part in our hatred of taxes. Since tax payments involve zero agency or freedom, people are likely to dislike them even if they pay for goods acknowledged to be valuable. Even worse, reactance can generate negative emotions toward its source. In the context of taxes, reactance creates antipathy toward government, even among individuals who otherwise benefit from it.

How Choice Can Detoxify Taxes

Will tax choice work? To answer the question, I conducted a lab experiment and follow-up survey (supported by the University of Pittsburgh’s Katz Graduate School of Business) looking into taxpayers’ views on paying taxes. A total of 902 taxpayers—aged 20-91 and spread across a nationally representative range of ethnicities, income levels, marginal tax brackets, and political affiliations—participated in the study.

In the experiment, all respondents completed an online survey that asked them to identify their primary sources of media exposure, filing status, and income bracket, and another survey inquiring about their satisfaction with paying their taxes, captured on a seven-point scale ranging from “not at all satisfied” to “very satisfied.” The respondents were divided into four groups, each of which was given a different treatment.

A quarter of our respondents were simply told to fill out the two surveys and given no additional information or an option to allocate their tax dollars. We called this the “uninformed no-choice” group.

Another quarter of the experimental respondents did the same thing, but were also given a pie chart showing the breakdown of income tax dollars across the discretionary portions of the federal budget: military spending; agriculture, commerce, and transportation; international affairs; energy, environment, and science; housing and community development; education, training, and social services; and anti-poverty programs. We called this the “informed no-choice” group. (Note that a pie chart showing the distribution of federal spending is different from a taxpayer receipt: the latter is less abstract, showing how much of an individual taxpayer’s total tax payment, in the stark language of dollars and cents, went to different federal programs.)

Another group of respondents was not given this baseline information, but did have a chance to allocate 10 percent of their income tax dollars across those same budget categories. We called this the “uninformed choice” condition.

Finally, a quarter of the participants were shown the current allocation of federal dollars and given the opportunity to allocate 10 percent of their income tax payment across the same categories—the “informed choice” condition. The results were fascinating. Both uninformed and informed choosers were significantly more satisfied with paying taxes than either group of no-choice taxpayers. According to our analysis, choosers’ increased satisfaction was associated with a sense that they had allocated in a way that benefited others. This sense of social benefit, in turn, predicted higher satisfaction with payment.

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Issue #20, Spring 2011
 
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Arik:

Very interesting article. My initial thought is that there should be a two to three-year gap between a taxpayer's choice and the year the funds are allocated. Because...

Administrators and budget directors at each agency would likely require a several-year time period in which to prepare for large budget swings from year to year. (For example, a multi-billion-dollar agency would have a difficult time with staffing if they received $2B more one year and $2B less the next.)

I for one would love to go to sleep knowing that a percentage of my tax dollars are not going to federal agencies which are antithetical to my ethical principles.

I am scared, however, that the generally ignorant public will make poor choices--just look at who they sent to DC!

Mar 17, 2011, 3:16 PM
Mike D:

I've been studying this idea since the early 1990s.

One of the more interesting aspects of tax choice is that it would not eliminate lobbyists, per se, but that you would become the target of their lobbying, for good or ill.

One of the schemes I've considered is to have three options available to a taxpayer:

1. Basic tax choice, in which taxes are allocated generally -- Defense, Education, and so on.

2. Detailed tax choice, in which the taxpayer can disburse his contributions in finer categories, such as watershed protection as opposed to merely "Environmental Protection" just for example.

3. Opt out -- Let legislatures decide how to spend my contribution, as they do now

(And we also recommend Arik's comment, or some version of it, to assure stability in the budget allocation and to account for emergency spending)

Let us spread the word on tax choice. It can work!

Apr 19, 2011, 1:21 PM
Bovlb:

If the legislature controls 90% of the budget, what's to stop them from simply allocating around the tax choices? Then the chosen amounts (some fraction of 10%) are simply a floor below which a specific budget can't be lowered.

Apr 19, 2011, 7:54 PM
Bram Scheers:

How can i get in contact with Cait Lamberton. I'm working on a project in the Netherlands that really looks like this. i'm very interested in her ideas.

May 11, 2011, 6:38 AM
Ed:

I have actually thought of this idea independently myself when paying last years taxes. With the current budget battle going on in Washington I started to look around b/c I was sure someone else had already thought of this.

I like Mike D comments. As for the opt out issue I think it should not be a blanket opt out. A taxpayer should be able to allocate a certain percentage to their congressman as well as other programs.

The entire idea I think would be positive in the long run. It would force our representatives to campaign for those issues they want funded.

While we're at it let's also adopt approval voting system as well!

I don't believe this type of change would be universally better for any specific party. On a personal note, I cringe anytime I hear "progressive" as I think it is an arrogant way to label oneself.

One issue a tax system like this will need to address is the acceptability of having rich people, who pay most of the taxes, having more power to shape the governments discretionary policies. Maybe since they carry most of the burden then that is an acceptable trade off.

Also, how about businesses and how will their taxes be allocated? Should they be able allocate funds as well?

Jul 28, 2011, 4:22 PM
Ed:

When I said rich people pay most of the taxes, I may have been incorrect.

What I was aiming for though is that someone who is rich and pays more taxes would, on an individual basis, have more influence than someone that pays little or not taxes.

Jul 28, 2011, 4:27 PM
Xerographica:

Thanks Mike D for sharing this article with me!!

Like a few of you I thought of this idea independently as well...but I didn't have any luck finding anything written on the topic. So I took the liberty of giving this idea a name..."pragmatarianism"...and dedicated a blog to the concept...

http://pragmatarianism.blogspot.com/

The word "pragmatarianism" is a combination of pragmatism and libertarianism.

The "pragmatism" is primarily from my hero Deng Xiaoping who said that he didn't care whether the cat was black or white...what mattered was whether it caught mice. As a result he managed to raise the standard of living for 100s of millions of people in China. It shouldn't matter whether an organization is public or private...what matters is whether it produces results.

The "libertarianism" is from Hayek's "partial knowledge" which ties into Bastiat's "opportunity cost" which ties into Smith's "invisible hand" which ties into Buddha's idea that we are all just blind men touching different parts of an elephant.

Yeah, "pragmatarianism" is pretty ungainly but after you say it a couple hundred times it's not so bad. I'm kinda attached to it but don't let that stop you from coming up with a better label. An idea can't get very far if you can't google for it.

If you get a chance you should check out my blog and search google for "pragmatarianism".

As I mentioned to Mike D...to help get the ball rolling I highly encourage all of you to create a blog either partially or completely dedicated to the subject.

Dec 7, 2011, 10:07 PM
Eselpee:

Ed brings up some good points about how much power is given wealth (individual and business) in a tax choice program.

I hope this stimulates some good discussion!

Dec 12, 2011, 4:34 PM
Xerographica:

Eselpee and Ed...it boils down to whether there is a correlation between wealth and values...

http://pragmatarianism.blogspot.com/2011/11/other-peoples-values.html

Dec 13, 2011, 9:04 PM
Xerographica:

Created a Wikipedia entry for this concept... http://en.wikipedia.org/wiki/Tax_choice

Feb 15, 2012, 7:47 AM
Attila Kovacs:

I have been advocating tax-choice for years. In my native Hungary, a 1% system has been in place for some 20 years now, and people seem to love it. I wish something on the 10% level would come to the US. I'm glad to see such a nicely argued piece on the subject. Thanks Cait! The question is how we bring this to our 2012 return? (or soon thereafter)...

Feb 15, 2012, 1:01 PM
Xerographica:

Here's the 1983 short science fiction story by Jack C. Haldeman II that is based on the idea of tax choice...We, The People...

http://www.sff.net/people/jack.haldeman/people.htm

Apr 18, 2012, 7:09 AM

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