2004 April 17 Saturday
Charles Murray: You Are What You Tax

In a New York Times Op-Ed Charles Murray proposes to allow each taxpayer to choose how their tax money is allocated.

Police, fire, water and sewage, courts and prisons and national defense will get far more money than they would ever have the nerve to request. The allocations for national parks, environmental protection, air-traffic control and highways will probably be many times their current budgets. But my first point (match my prediction against your own choices) is that almost all the choices will be for tangible services. Most of them will be for services that fall under the classic understanding of a "public good" - something that individuals cannot easily provide on their own and that is shared by all (police protection, clean air).

Mass direct democracy is an appealing idea. Governments do many things that they would not do if each individual decision was separately voted on by all voters. On a large assortment of subjects the government does things that the majority opposes. For instance, on immigration the elite-populace gap is huge. Public choice theorists offer explanations for why government so often behaves in ways that cause it to go against the will of the majority. But it seems they less often propose what to do about this problem. Murray is offering a rather bold proposal that would, if implemented, cause a huge reordering in government spending priorities.

One can pick some nits on this proposal. One objection is that giving each taxpayer the ability to allocate government spending would make spending too volatile from year to year. Is this a fixable problem? One way to deal with it would be to allow a person to commit to a multi-year allocation of taxes paid. But there would need to be some incentive for a person to specify their allocations over multiple years.

A second objection is that a once-a-year allocation would not offer sufficient flexibility. If, for instance, there was need to increase defense or homeland security spending due to an event in the middle of the tax year there'd be no way to do that if all money was allocated when people filed their tax returns. But we could allow people to allocate some of their tax money to something called "reserves" and then to allocate that reserve money within the year or even to assign that money to a future year.

A third problem with this proposal is that in the simplest implementation each person would not know in advance what decisions others would make. A person who wants to make sure that a particular area gets funded well enough might specify that all their money would go to that area. But if too many do so then all the biggest supporters of an agency or project may get an outcome they do not desire with so much going to that area that much of the money would be wasted. For instance, give NASA $50 billion next year and there'd be no way for NASA to spend that effectively.

To implement Murray's proposal would require some sort of mechanism that would allow taxpayers to specify rules to transfer money to lower priorities once their top priorities have enough money. So a taxpayer could say "Allocate all my money to the Environmental Protection Agency if its budget is less than $1 billion but for every $100 million above $1 billion that the EPA gets take 10% of my money and allocate it to the next item on my priority list". If each item on a person's priority list was specified as a rule in some formulated automatically implementable manner then a person could be assured that what they want to spend money on will get enough but not too much.

But spending rules in that style the example above uses would face another problem: If lots of people put conditional rules on how much they want to spend on, say, the Environmental Protection Agency whose money should be reallocated to their priorities once the EPA has enough money? One could imagine a method where everyone's first rule was evaluated, the EPA might then be found to have a $10 billion dollar budget, and then anyone who wanted a lower max would have portions of their money taken away until the EPA was down to a point was greater than or equal to their spending max for that agency.

Another way to handle the over-allocation problem would to allocate money in a series of steps where each person had to allocate, say, 5% of their tax money at each step. Then each person could see what other decisions others were making in the early steps and stop allocating to some purposes after the first few steps once they see that enough money is going to those purposes. This is not an ideal solution however because this mechanism still might result in some purposes getting far more money than some of their earlier stage allocators would prefer.

It seems reasonable to implement this proposal gradually. Shift 10% of each person's income taxes into the allocatable category each year. One advantage to this approach is that it would allow the populace to gradually learn the consequences of their allocations. But in the first year of such a mechanism for implementing spend Congress might respond by shifting around the remaining money to at least partially cancel out the directly expressed preferences of the taxpaying populace.

Another obvious huge problem with this proposal is in how to define the spending categories. Do we make "Defense" a single item? Or do we let people specify whether they want their money to go the Navy or Air Force or Army or Marines? How about submarines versus surface ships? Or building new equipment versus upgrading versus raises for the troops versus more troops?

Congress could be tasked with defining the spending buckets. But it might be tempted to assign tasks to a department just because that department gets lots of money from the choices of taxpayers. Congress already uses spending laws to foist all manner of rules on federal contractors about racial preferences, environmental regulation, and assorted other topics. Congress would be tempted to do much more of this if the taxpayers were more directly controlling the purse strings. What could be done to limit Congress's use of this sort of strategy and of the bureaucracy's use of this strategy?

A final objection is that the people who make the most and pay the most in taxes would have a far larger say in how money is spent than those who pay little or no taxes. True enough. But is that a problem? If so, why? I think those who are making the most will probably make better decisions. Seems like a feature rather than a flaw.

If anyone reading this knows any game theory and has some better suggestions on implementation of Murray's proposal then please post them in the comments.

Charles Murray is the author of a number of books including most recently Human Accomplishment : The Pursuit of Excellence in the Arts and Sciences, 800 B.C. to 1950 as well as What It Means to Be a Libertarian, his highly influential Losing Ground: American Social Policy, 1950-1980, and co-author with the late Richard Herrnstein of the book that is more influential than most are willing to admit: The Bell Curve: Intelligence and Class Structure in American Life.

Update: One other point about this proposal worth noting is that one flaw with current democracy is that each vote for a representative has to be over too many different issues. When governments did orders of magnitude fewer things the number of reasons to choose between candidates was fairly small. But today we have to select people who have to make so many different decisions on so many different issues that there are too many trade-offs in a voting choice. You might, for instance, prefer one presidential candidate on domestic issue but another on foreign affairs. Or you might prefer one on criminal law enforcement and another on environmental regulation. The outcome has to be less than optimal. Regardless of whether you agree with Murray's proposal consider the possibility that some major change in how decisions are made could produce much better decisions.

Another proposal that I've encountered in the past is to elect two legislatures, one for taxation legislation and the other for spending legislation. People could then separately choose how much they want to get taxed and how they want to see the money spent. Of course there are plenty of ways to use tax legislation to force private individuals and corporations to spend money in ways that are contrary to their interests and their desires. Also, there are plenty of ways to structure spending programs that will have some impact on how much tax revenue will be collected. But the idea of separate voting on taxation and spending has merit.

One big advantage of Murray's proposal is that it would give people a much bigger sense of direct involvement and power in how the government operates. That would probably be an incentive for citizens to learn more about issues since they would have much more control over how their money was spent. It would also likely produce much more satisfied taxpayers.

Share |      By Randall Parker at 2004 April 17 02:48 PM  Politics Money

Daniel Von Fange said at April 17, 2004 5:48 PM:

You've probably been called by telemarketers soliciting money for charities. If I recall correctly, often the game is played where the charity gets 10% of the money collected. The charity is getting money they would not have otherwise so they are happy, but 90% of your money is wasted.

I can see this waste-a-lot-to-gain-a-little as being the biggest problem such an allocation scheme would cause.

It's probably solvable, of course.

Fly said at April 17, 2004 7:16 PM:

Seems to me that if each taxpayer could decide exactly how one’s taxes were spent that we’d no longer have equal representation for all citizens. (The ability to fund programs is the ability to control programs.) The wealthy and the well off already influence the government far more than the average citizen does. Wouldn’t this proposal make government by the “elite” even more pronounced?

I do see benefit in letting people indicate on their tax form where they would like to see funding increase or decrease. Legislators would be influenced by the poll result, as they will want to win votes. However the major influence on lawmakers should be “one person, one vote”, not how much money a person pays in taxes.

Randall Parker said at April 17, 2004 7:34 PM:

Fly, I think the people who are sufficiently disciplined, talented, and motivated to make a lot of money will make wiser choices in how the government should spend its money. Also, I think they will make choices aimed in large part at the greater good of the populace as a whole.

Fly said at April 17, 2004 7:58 PM:

A lot of the wealth in this country is inherited. Have those that inherited wealth shown greater wisdom than those who work each day?

Bill Gates earned his wealth. However I believe him to be a ruthless businessman who used predatory tactics to achieve his success. Success in accumulating wealth needn’t imply wisdom in guiding society. Should Bill Gates have more influence than his thousands of intelligent, educated employees? (Of course in our system today he already does.)

Randall, I don’t totally disagree. I have no special fondness for the “one man, one vote” system. (I just don’t know of a system that works better.) Perhaps a voter should take a quiz on the candidates and then have his vote weighted by his score. Thus knowledgeable voters would have more influence in our society.

Randall Parker said at April 17, 2004 8:47 PM:

The problem with all the discussions about inherited wealth is that it is anecdotal. How wise are they on average? Heck if I know.

However, my impression is that the trust fund babies are not paying much in taxes anyway. It is the people who are working who pay most of the taxable income.

Bill Gates: His foundation is dispensing money toward all sorts of causes that seem pretty wise. Look at what he's doing with infectious disease research for example.

Note my update on this post where I point out some other approaches. Still, I like the idea of empowering the taxpayers. They earned the money after all and, on average, produce a lot more.

Fly said at April 18, 2004 6:19 PM:

Randall, I should clarify that I don’t think Bill Gates is evil or even bad. I applaud his major contribution to combat Third World diseases.

“But today we have to select people who have to make so many different decisions on so many different issues that there are too many trade-offs in a voting choice.”

I favor a representative democracy in which I vote for a candidate that I trust to represent my interest. Elect good, qualified people and trust them to do their job. Depend on the investigative press to keep the politicians honest. Depend on the bloggers to keep the press honest.

I think your ParaPundit site is an excellent means for pushing single issues. You devote the time and energy to fully explore the subject. You link with like-minded people who help spread the most important information. Push enough and politicians respond.

Randall Parker said at April 18, 2004 8:39 PM:

Fly, I think we shouldn't let our sentimental attachment to democracy prevent us from looking at it like the Public Choice economists (e.g. Nobelist James Buchanan) see it. It doesn't work that well. We can't always manage to push that hard because most people simply do not have a big enough incentive to care. Therefore special interests with much more directly at stake have far more influence than they deserve. Look at corn farmers and Archer Daniels Midland and the ethanol corn subsidy.

My site gets maybe 700 or 800 visitors a day. A few hundred million never show up. I have some impact perhaps because some columnists and other influentials read me sometimes. But I don't think bloggers are enough to fix the system. I think we should be able to learn from the deeper understanding of political processes that economists have produced and propose better ways to organise mass decision making.

Keep in mind that representative democracy was installed at a time when there were no cars or telephones or television - let alone the internet. People spent days or weeks on horses to get to Congress to hold a session. People had to send representatives. Now you and I discussion things from different parts of the country (or whatever country you are in) with at times minutes between our replies. Surely the whole "representative" part of democracy is not as compelling as it used to be. Perhaps there are better ways, no?

Fly said at April 19, 2004 7:46 PM:

I’m open to new ways. One nice feature of our city/state/nation system is that ideas can be tried out at the local level first. Are any major cities or states exploring direct citizen participation? Is there a community letting people directly decide how the taxes they pay are spent?

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