Democracy in Taxes

Taxes seem to be an inescapable evil of life. Everyone seems to hate them, and most people would prefer to not pay them. This persistent opposition to taxation suggests that there may a problem in our approach. Are taxes really that bad? And could they be fixed?

What exactly is the purpose of taxation? Sure, taxes take our money, but where does it go? Taxes provide money to the government, which it uses at its own discretion to fund various projects. These projects -- ideally -- go to the public good. The fact that government services are public goods is important. It implies that the goods and services that government provides cannot be provided by private sources. This is because of the free rider problem, which is where it is impossible to separate between payers and non-payers. Governmental services are designed to help everyone equally. If left to private sources, people would wait for other people to pay so that they could get a free ride. Take a water purification center. It would benefit the entire community by cleaning the environment and providing more potable water. If one person decides to buy it, then, everyone in the community benefits. So there is very little incentive for people to pay, if they hold out someone else could give them a free ride. Taxation removes this difficulty, since everyone is made to pay for public goods.

So taxation is necessary for the proper functioning of a society, as it allows public goods. Where is the problem, then? One objection to taxes is that the government takes our money and uses it at its own discretion. It is this inability to control one's own earnings that many people find objectionable in taxes. So if there were a way for people to control where their money went and still provide public goods, the problem of taxation would disappear. This should not be a great difficulty, though, because government controlled by the people is part of the definition of democracy. What is necessary is a democratization of taxation.

One solution would be to change the approach by which tax revenue is allocated. When people prepare their taxes, they would also get a list of goods and services that the government offers (due to the large number of government projects, this list would probably need to focus on the level of departments -- i.e. Department of Health and Human Services or the Department of Defense). They would then select where they want their money to go and send it to the government. This essentially allows citizens to vote on government projects with their tax dollars. Popular projects are funded and grow, while unpopular ones are eliminated. In this method, people get the incentive of directing where their money goes, so they keep their purchasing power and are in control of their own funds. However, because the tax money is already allocated to public goods, the free rider problem is circumvented. A separate public market is established, where everyone is required to participate while retaining their autonomy.

This system would have the added benefit of reducing government corruption. Private interests and lobbyists would have less reason to bribe the legislature if it cannot give them money. Even Congress were to be corrupted and create programs that benefit private interests, public oversight would reduce its effectiveness. The citizenry itself would have to be corrupted, rather than its elected representatives.

No system is perfect, though. This change does have some potential pitfalls. It would require increased citizen interest in the government, since less popular programs may still be necessary. The majority could fail to know what is best or improperly plan for eventualities. Even if this flaw would be their own fault, some type of check or balance is needed. Three independent methods may serve to safeguard the public interest against the fickle whims of the majority. The first is to allow Congress to retain some degree of control over the allocation of funds. Congress could transfer a certain percentage of funds to other programs, thereby allowing them to edit the budget. In case the public incorrectly allocates funds (i.e. too much to one program while neglecting others), Congress would still have the power to balance this out, although not to the degree they previously enjoyed. So in addition to creating government programs for citizens to support, Congress would also check the excesses of its citizens. Another safeguard would accept that this change may be flawed. In this case, only a percentage of an individual's taxes would be at their discretion. The rest would still be controlled by Congress. This would mix the methods of taxation and provide a test of each. The final control would manage the presence of unanticipated disasters. In case a problem arose and the country lacked the means to solve it, Congress could re-allocate funds. This would basically increase the power that Congress was granted in the first safeguard, allowing them to respond to more drastic challenges. These controls would not eliminate all problems, but they might help.

This policy would allow private citizens to retain their freedom in the public sphere. People would still be forced to pay taxes, but they would retain their freedom to decide how to spend their money. In doing, personal freedom and public benefit are balanced, producing what may be a more equitable compromise.

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