Tax choice

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In public choice theory, tax choice (sometimes called taxpayer sovereignty [1] , earmarking or Fiscal subsidiarity [2] [ failed verification ]) 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]


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

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

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.

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.

See also

Related Research Articles

Tax Method to impose financial charge or other levy upon a taxpayer by a government or functional equivalent

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.

An income tax is a tax imposed on individuals or entities (taxpayers) that varies with respective income or profits. Income tax generally is computed as the product of a tax rate times taxable income. Taxation rates may vary by type or characteristics of the taxpayer.

Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science". Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents and their interactions, which can be represented in a number of ways – using standard constrained utility maximization, game theory, or decision theory.

The Ricardian equivalence proposition is an economic hypothesis holding that consumers are forward looking and so internalize the government's budget constraint when making their consumption decisions. This leads to the result that, for a given pattern of government spending, the method of financing that spending does not affect agents' consumption decisions, and thus, it does not change aggregate demand.

Public finance Public finance in economics

Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:

  1. The efficient allocation of available resources;
  2. The distribution of income among citizens; and
  3. The stability of the economy.

Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.

Starve the beast

"Starving the beast" is a political strategy employed by American conservatives to limit government spending by cutting taxes, in order to deprive the federal government of revenue in a deliberate effort to force it to reduce spending.

Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax liabilities. The use of the term 'noncompliance' is used differently by different authors. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States.

National Taxpayers Union organization

The National Taxpayers Union (NTU) is a conservative taxpayers advocacy organization and taxpayers union in the United States, founded in 1977 by James Dale Davidson. NTU says that it is the largest and oldest grassroots taxpayer organization in the nation, with 362,000 members nationwide. It is closely affiliated with a non-profit foundation, the National Taxpayers Union Foundation (NTUF). NTUF is a non-partisan research and educational organization dedicated to showing Americans how taxes, government spending, and regulations affect them. The organization developed a method of determining how fiscally responsible members of congress are. This scale is used to determine how likely a member of congress is to vote responsibly in terms of finances. Some determining factors included are personal for instance, how many overdrawn personal checks the congressman has in a certain amount of time. While this may seem brash, the personal finance of congress members plays an important part in the grade they are assigned. Another particularly important factor in the grade is how the congress member votes on bills that the National Taxpayers Union sees fiscally important. Essentially the grade given to the politician determines how trustworthy he is in the eyes of the National Taxpayers Union. The scale is also designed to accept both the point of view of conservative house members who want to balance the budget and liberal house members who would rather invest in commonwealth.

Conscientious objection to military taxation (COMT) is a legal theory that attempts to extend into the realm of taxation the concessions to conscientious objectors that many governments allow in the case of conscription, thereby allowing conscientious objectors to insist that their tax payments not be spent for military purposes.

In public choice theory, fiscal illusion is a failure to accurately perceive the amount of government expenditure. The theory of fiscal illusion was first developed by the Italian economist Amilcare Puviani in his 1903 book Teoria della illusione finanziaria. Fiscal illusion occurs when government revenues are not completely transparent or are not fully perceived by taxpayers; then the cost of government is seen to be less than it actually is. Since some or all taxpayers benefit from government expenditures from these unobserved or hidden revenues, the public's appetite for government expenditures increases, thus providing politicians incentive to expand the size of government.

Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient and a tax brings consumption closer to the efficient level.

Voluntary taxation is a theory that states that taxation should be a voluntary act. Under the theory, people should have the option to pay taxes instead of being forced to pay taxes by their government. Under this theory, people would control how much they pay and where they spend it. The theory is a part of Objectivist politics and many libertarian ideologies. Proponents of some studies assert that individuals will give to government, paying voluntary taxes to support specific functions. Donations average 22 percent of an endowment to government, and 27 percent to private nonprofits, and are influenced by their cause, level, and perceptions of effectiveness and efficiency. State lotteries are an example of a voluntary taxation system.

The 2007 Texas Constitutional Amendment Election took place 6 November 2007.

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The hypothecation of a tax is the dedication of the revenue from a specific tax for a particular expenditure purpose. This approach differs from the classical method according to which all government spending is done from a consolidated fund.

Several theories of taxation exist in public economics. Governments at all levels need to raise revenue from a variety of sources to finance public-sector expenditures.

The benefit principle is a concept in the theory of taxation from public finance. It bases taxes to pay for public-goods expenditures on a politically-revealed willingness to pay for benefits received. The principle is sometimes likened to the function of prices in allocating private goods. In its use for assessing the efficiency of taxes and appraising fiscal policy, the benefit approach was initially developed by Knut Wicksell (1896) and Erik Lindahl (1919), two economists of the Stockholm School. Wicksell's near-unanimity formulation of the principle was premised on a just income distribution. The approach was extended in the work of Paul Samuelson, Richard Musgrave, and others. It has also been applied to such subjects as tax progressivity, corporation taxes, and taxes on property or wealth. The unanimity-rule aspect of Wicksell's approach in linking taxes and expenditures is cited as a point of departure for the study of constitutional economics in the work of James Buchanan.

Fiscal capacity is the ability of the state to extract revenues to provide public goods and carry out other functions of the state, given an administrative, fiscal accounting structure. In economics and political science, fiscal capacity may be referred to as tax capacity, extractive capacity or the power to tax, as taxes are a main source of public revenues. Nonetheless, though tax revenue is essential to fiscal capacity, taxes may not be the government's only source of revenue. Other sources of revenue include foreign aid and natural resources.

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  1. 1 2 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)
  2. Buchanan 1963.
  3. Lamberton, Cait (4 March 2011). "Your Money, Your Choice". Democracy: A Journal of Ideas.
  4. Sherry Xin Li; Catherine Eckel; Philip J. Grossman; Tara Larson Brown. "Do Earmarks Increase Giving to Government?". CiteSeerX .Cite journal requires |journal= (help)
  5. 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.
  6. 1 2 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)
  7. 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.
  8. Kennett, Patricia (2008). Governance, globalization and public policy . Edward Elgar Publishing. p. 56. ISBN   978-1845424367
  9. Vincent Ostrom; Elinor Ostrom (2003). "Public Goods and Public Choices" (PDF). Archived from the original (PDF) on 20 May 2005.
  10. 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
  11. Taxpayers’ Choice Debt Reduction Act
  12. Opt Out of Iraq War Act of 2007
  13. Put Your Money Where Your Mouth Is Act
  14. Kasperowicz, Pete, "Rep. Campbell proposes tax form change to encourage donations to the government". The Hill", 18 April 2011.
  15. 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.
  16. 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.

Further reading