Situation: We all want to reduce the deficit. Republicans don’t want to raise taxes, but maybe they will if we give them something…
Proposal: Republicans are big on government accountability and fiscal responsibility, at least in principle… So what if in exchange for cutting spending and raising taxes in some ratio that is more heavily weighted toward tax increases, say 70% tax increases, mostly for wealthy people, and 30% spending cuts to entitlements, we introduce a new law, a “discretionary” taxation option. This plan, specifically pertaining to the federal income tax, would consist of the following:
80% of the income taxes collected by the IRS are collected and disbursed exactly as they are now.
20% of the income taxes collected by the IRS could be directed to a specific existing program or department, or experimental/new program, defense, education, healthcare, etc. according to the individual taxpayer’s wishes.
Is this 20% discretionary income tax (combined with higher tax rates overall) something that would be helpful in getting government to become more efficient, as programs and departments that would get less funding from taxpayers would face pressure to cut costs (in administration, overhead, etc.), while programs that were supported more, as evinced by receiving greater relative shares of this discretionary income tax, would be strengthened and possibly expanded?
*This 20% discretionary income tax allows the taxpayer to choose, but it still must be paid in full; discretionary doesn’t mean “optional,” it means “mandatory, with choice in allocation of funds.”
Fred Pohl proposed something similar. A certain amount of tax was fixed spending (10%), and the taxpayer had no way to direct how the money was spent. However, by paying an additional 1% per 10% of the total tax bill, the taxpayer could direct his/her money to be spent on welfare, or the war effort, or whatever. I could be wrong about the details, but the general idea was that the taxpayers didn’t rely on politicians to allocate tax funds for the most part.
So, while the folks who work for a defense contractor will probably dedicate their taxes to defense, other people might or might not want their tax bucks going there.
I think this is an interesting idea, but I doubt that it will ever come to pass. It’s the politicians who would have to put it in place, and that would involve giving up a lot of their power.
It would be an accounting nightmare and I don’t think there would be any difference at all. Think of the total income tax revenue collected by the government as one huge pie. You’ve directed that a portion of your own contribution go to a specific slice. OK, fine. But that doesn’t mean that slice will get a greater share of the total pie. It just means a teeny sliver of that slice will have your name on it. And general tax revenue, not part of the discretionary portion, will make up for that deficit in other slices. In the end, every slice will receive what lawmakers say it should receive. But trying to account for all of the individual directives will just add to the total cost.
Unless you reverse the percentages, 80% discretionary and 20% fixed, it’s not going to have much effect.
The lawmakers will just divvy up the 80% to make the total funding of the projects equal to what their ideology and political pressure from voters, lobbyists, donors, etc. determine it should be.
UNLESS people start earmarking the 20% for projects that otherwise would receive little or no funding at all. Depending on how discrete the programs and departments are, this may cause funding to go to areas that 90% of the population does not believe should be funded at all. But since the lawmakers are making up the categories and defining what is included in them, even that may not work for too long. The creativity of congress to define a tail as a leg, has few boundaries.
The public is capricious and many programs need a long time to come to fruition, not to mention some of the most important are not sexy enough to get discretionary love (great for the space program, bad for paying down the nation debt).
Massively fluctuating budgets don’t help anyone, be the cause from legislators or the public.
California has been trying variations on the idea for a while now, which more or less have the same effect, but through different mechanisms. For example, in 1998, voters required that 40% of the California state budget be spent on education. What is the result? Because of the whims of the California voters, legislators lose their ability to make informed decisions and balance priorities. If there’s a windfall tax receipt for some reason (like the Facebook IPO, for example), it means that a large percentage of that windfall must be spent on education, whether or not an objective or informed person may see needs that are more pressing.
So how does this relate to the OP’s proposal? People who have no time to study issues shouldn’t make decisions that have significant impacts. People would be inclined to dedicate their money to things that they like, rather than being able to make an informed judgment about whether the money is actually needed. Add to that the fact that the majority of Americans have no friggin’ clue how government funds are actually spent.
So, popular things like NASA may receive windfalls even if NASA has no idea if we’re going to Mars, if we’re going to start relying on commercial space launches for our return to space, or what.
My suggestion: if people don’t like the way government funds are being used, elect new leaders.
How about a button on a gas pump “would you like your gasoline taxes to go to highways or to mass transit?”. You could then key in the number of the road you want it to go to. Stuck in traffic? Now you can do something about it.
The first flaw is I’m pretty sure the Republican leadership regards tax reduction as its first priority. That’s what their actual policies indicate anyway. So they wouldn’t agree to a tax increase in order to get something they regard as only a secondary goal.
The other flaw, as others have already said, is that government money is pretty flexible. They could set a budget, hand out the 20% money specified by the tax payers, and then divide up the 80% money controlled by the government to balance out any gaps. It would end up with programs getting the amount the government had decided on in their budget with the taxpayer choices having no real effect.