After Hariolor’s proffered abolition of taxation and certainly not to be outdone, I offer an alternative “crazy tax plan,” one that, like Hariolor’s, will certainly never gain traction but embodies a similar, Old Man Waterfall sort of democratic spirit. Like the Hariolor plan, this option would represent a significant shift from a representative republic to a direct democracy, which of course comes with risks. But I have always viewed the democratization of taxes and spending as merely an extension of the free market into government, which is always a good thing.
Think of this tax plan, which I’ll unilaterally dub the “Tax Buffet” plan, as a sort of 401K for investment in government services. First of all, it would require the institution of a flat income tax, which is simply a percentage of your annual earnings. For simplicity’s sake, let’s set it at 15% across the board (in reality it would probably need to be two rates, similar to the proposed Taxpayer Choice Act). Now let’s establish some critical figures. According to the US Census Bureau, there are roughly 180 million Americans between the ages of 20-64, within which fall the vast majority of wage-earners. Additionally, the median annual personal income in the United States is around $30,000.
The Tax Buffet plan would have 7% of the total 15% an individual/household is taxed go directly into federal coffers to be spent exclusively at the discretion and whim of Congress. Given the figures established above, that 7% of every tax-paying American’s income would amount to around $378 billion, which is a little over half of what the federal government spends on Defense alone ($650 billion).
Now here comes the 401K analogy. The remaining 8% of that 15%, which comes to roughly $480 billion, would be allocated by the taxpayer to federal programs of their choice, as delineated on a FY (For Year) Federal Budget Allocation Sheet (or something). This sheet, which would become part of the standardized tax forms completed by all taxpayers and submitted to the IRS, would perhaps be drafted up by the Government Accountability Office with input from the US Congress. The form would break out federal spending into clear-cut categories (Defense, Education, Infrastructure, Entitlements, etc) and permit the taxpayer to pick and choose which programs over half of their tax dollars go to fund. They can allocate in increments as small as half a percent and of course choose to contribute zero tax dollars to certain programs altogether.
By this method of taxation, the federal government is allowed a minimum of $378 billion to play with at their discretion, be it on social engineering or beefed-up defense. The remaining $480 billion in revenue, however, must be spent in accordance with the individual tax payer’s wishes. Oversight on the part of the GAO would of course be required in order to ensure compliance and no sleight of hand by the IRS or Congress. If the majority of Americans want their money to go to pay for entitlement programs, then so be it. It’s their money to invest as they wish. Likewise, the minority who oppose those entitlements will have the satisfaction of knowing their money went to pay for national defense instead. The Tax Buffet plan would turn a system that currently resembles a mafia protection racket into something more akin to actual private sector investment.
Due to some of the complexities involved, however, this plan has a few issues. It would be difficult to ensure that taxpayer allocated money does not end up paying for pork barrel spending or earmarks attached to appropriations in the category they chose to subsidize. The oversight will be critical to be sure, but there is also a high risk that lawmakers will get up to shenanigans by finding “grey areas,” in which their entitlement initiatives may get lumped in with infrastructure due to some creative language (for examples see the stimulus bill). Additionally, as this plan is more democratic than republican (note the lower-case first letters), it runs the risk of disenfranchising a minority of the population altogether, particularly lower income Americans, who are only able to allocate a comparatively small amount to the federal programs of their choice, whereas wealthy tax payers can bring in more money to their favorite government initiatives. In this way, it may end up that the richest Americans, who represent a smaller segment of the population, balloon defense spending while the majority of Americans see the programs of their choice dwarfed despite their contributions.
However the benefits of such a tax policy far outweigh the negatives, in my view. Government will be forced to pitch programs directly to the American taxpayer. There will be no guessing as to what the will of the people is when they vote with their money.


Hariolor said...

This is not necessarily too different from my plan.

I agree with your comment in response to my post that a minimum tax may be necessary - i enjoy the possibility that it would be a VAT or Sales Tax, as opposed to the insidious income tax. Though even a sales tax is necessarily regressive...but that's a different argument.

Perhaps your 15% rate is a bit usurious, however. For someone making $30,000 a year, a 15% hit to their income is vast, especially considering the real cost of living in America requires a far higher income than $30,000/year. However, a 15% hit to someone making $200,000/year, while a proportionately equal amount, and a far larger dollar figure, may eat less into their quality of life.

Then again, I propose that it is categorically impossible to institute any system of taxation that is both fair and equitable.

Furthermore, your buffet-style taxation concept, which I know you to have voiced in private in the past, actually inspired my line-item contribution plan. Only rather than requiring a fixed amount of contribution, it would be up to the taxpayer how much they gave.

Alternatively, I might propose a 20% federal sales tax in place of any income tax whatsoever (or a lower rate VAT, if a VAT can be implemented more fairly to avoid preferential treatment to business or whatever).

The rub will be that this money goes into a communal pool for the upcoming fiscal year. At the end of the year, instead of paying taxes, the total value of the pool is divided by the total number of registered voters surviving on Dec 31 of that calendar year. Those voters then can fill out a schedule indicating by dollar or percentage (their preference) how they wish to allocate their portion of that years collected tax.

This has the added benefit of being a uniform tax, and eliminates the need for corporate taxes, income taxes, estate and gift taxes, etc. Furthermore, it encourages voter registration.

One downside to this sort of annual allocation that I do not envision occurring under my plan is that from year to year, citizens will not know how other citizens are behaving. A running total is more informative than an annual lump-sum contribution.

Perhaps the allocation forms should be submitted quarterly, much like estimated taxes are now. This allows for a more dynamic exchange between the voters and government as to where income is flowing...?

Ben Wheat said...

I like the idea of doing away with the income tax in favor of the VAT only and then having the collected tax funds allocated from that pool per the taxpayer's (not the voter's, not all people that vote pay taxes) wishes via the allocation form.

I don't know that the sluggish federal government would be agile enough to allow for submission of allocation forms from taxpayers every quarter, it could really screw with the budget in some negative ways. Better perhaps to just have the GAO release the results of how the taxpayer funds will be allocated based upon allocation forms received to the public.

Similarly, taxpayers would receive in the mail from the IRS/GAO their tax allocation statement, just as 401K contributors get their statement mailed on a monthly basis, showing them how their money will be disbursed (in general) and how the country as a whole opted to allocate their taxes.

Doing this on a yearly basis may be rough at first, but it will force taxpayers to think their choices through as they're stuck with them for the full 365 days.

Hariolor said...

perhaps part of the issue is that I see no good reason for the Federal government to still be as sluggish as it is. A few college kids could spend a weekend and build a website that manages everything the need, at least on the input and allocation sides of things.

Once the money hits the different departments, all bets are off.

I am just really tired of the switch to internet-based governing taking so long. Yes, it's potentially subject to hacking, but that's hardly any more frightening than our current situation.