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.

By Randall Parker    2004 April 17 02:48 PM   Entry Permalink | Comments ( 8 ) | TrackBack ( 0 )
2002 November 23 Saturday
Bush Signals Russia's Iraq Interest Will Be Protected

Russia's UN position on Iraq was all about money. Now Bush, by making his assurances public, has made it clear to the Russian government that the US will make sure Russia continues to earn money from Iraqi oil fields after Saddam's regime is gone.

Bush took such assurances to a more formal and public level when he told Russia's NTV Television on Thursday that if there is regime change in Baghdad, "we fully realize that Russia has economic interests in Iraq, as do other countries."

"Of course, these interests will be taken into account," he added.

The Bush Administration is even willing to make sure that world oil prices will stay high enough to prevent a Russian economic meltdown.

A high-ranking Russian foreign ministry official involved in negotiations with the United States over the U.N. resolution told an American visitor to Moscow this week that a "gentleman's agreement" had been reached with Washington on Iraq.

He said the deal centered on maintaining a price of oil at around $21 a barrel, the price used by Russian government planners for long-term budget estimates. Oil prices have been hovering around $25 a barrel for much of this year.

As I've stated previously, there is considerable irony in the argument that the US is going to fight Saddam for oil. Many of the opponents of the war against Saddam's regime come to their opposition in large part as a result of their own oil interests and other financial interests in the Iraqi regime and in world oil prices.

By Randall Parker    2002 November 23 08:46 PM   Entry Permalink | Comments ( 0 )
2002 November 05 Tuesday
Iraq Is About Oil: But In Whose Minds?

Some opponents of a US attack on Iraq put forward the argument that the US motive revolves around oil. There is considerable irony in this argument because while the argument about whether to attack Iraq is about oil the reason is not because of US motives. The reason that the fight over Iraq is about oil is because the opponents of the attack want to protect their oil interest and other interests in Iraq that flow directly or indirectly from Iraq's ability to produce oil. Take Russia for example:

Iraq still owes Russia from $7 billion to $10 billion for arms purchases during the war with Iran, and Russian oil companies, with their history of cooperation with Iraq, are poised to be major players in any revival of the Iraqi oil industry.

Lukoil, Russia's biggest oil company, signed a 23-year deal with Iraq five years ago to rehabilitate the country's southern oil fields, a deal potentially worth billions.

At the same time, Russia is worried that an eventual increase in Iraqi oil production could drive prices down.

Russia is hardly the only country who sees its oil interests threatened by a US invasion of Iraq. Saudi Arabia doesn't want Iraqi production to lower the world price of oil and it doesn't want US control of Iraqi oil fields to lessen US feelings of dependence on the Saudis. France wants its business relationships with Iraq to be maintained.

By Randall Parker    2002 November 05 07:32 PM   Entry Permalink | Comments ( 0 )
2002 September 23 Monday
Russia fears Iraqi regime change will lower oil prices

There is frequently a big gap between the stated and actual reasons governments oppose the actions of other governments. Well, in the case of Russia's objection to regime change in Iraq the actual reason for Russia's position is all about the Benjamins. From the Janes site:

However, what the Kremlin fears most is the ousting of Saddam Hussein and his replacement with a US-backed puppet regime. Should such an administration be installed in Baghdad, there is likely to be a marked fall in oil prices as US oil companies are free once again to invest in Iraq's ageing and under-funded industry. While lower oil prices will be welcomed by the US, Russia will be facing difficult economic prospects. From Moscow's perspective, a protracted diplomatic wrangle and restricted Iraqi oil output would be best.

As Tony Blair tries to get a UN Resolution to support action against Iraq in order to appease the left wing of the British Labour Party keep in mind that Russia has veto power in the UN Security Council.

By Randall Parker    2002 September 23 06:10 PM   Entry Permalink | Comments ( 0 )
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