I was reading Financial Samurai’s post on The Ultimate Solution For A Fair Income Tax Policy in America quite a while ago, but I still wanted to say something about it. (Sometimes, these response posts end up disappearing in my archive for a while.) If you haven’t had a chance to read it, or if it’s been a while and you want to refresh your memory, it’s pretty interesting (as Sam’s posts tend to be). The Cliff Notes version is that he recommends only allowing those people who pay income taxes to vote. If you don’t have any of your own money at stake when government starts divvying up the spoils, you’re not going to have any qualms giving out the money (and taking some yourself), or so the thinking goes.
Well, I and some other commentators had some qualms with that approach. (Sometimes I think that Sam writes these kind of articles just to get us all riled up; not a bad strategy, if that’s what he’s doing). The complaints included the fact that income taxes are not the only taxes being paid (there’s everything from sales taxes to Social Security taxes that lower income people pay; should they only be able to vote on issues that their taxes go to fund? If that’s the case, expect to see lots of votes to up Social Security benefits to low or moderate income people (that is, incomes at or below that of the voter) and increasing the threshold for paying Social Security benefits.) There are also plenty of ethical issues with disenfranchising a number of people (which is the sort of thing that’s led to protests, even wars in the past). Short version, not something I think would be possible.
But, in the course of answering Sam’s argument, I came up with my own variation on the idea, which has some possibilities for not only keeping government spending under control, but also potentially increasing the number of people who willingly pay their taxes.
My (Brilliant) Plan
The basic idea is allow individual tax payers to direct their income taxes toward specific government programs. It won’t change the total amount owed, but at the end of the 1040 form, we add on a list of government programs, allowing the taxpayer to choose what programs he wants to support with his or her tax dollars. (Sorry, no ‘I can spend my money smarter than the government, give me back my tax money now’ option; again, no changes in your tax bill, just in how the money is divided.)
How would this help? Well, I imagine that you, like me, know plenty of people who like some of what the government does, but not everything. Heck, it’s difficult to find someone who likes everything the government does, all the time. From people who think that the government should only defend the borders to those who want more social programs and fewer defense projects, just about everyone wants the government to spend their money differently.
That’s where being able to direct where your money goes could have a nice benefit. Want to support the troops, and government social programs? Direct your taxes to the military. Want social programs to grow, but think there’s too much military spending? Put your money toward poverty aid or other social programs. We can even make it possible to direct your money more narrowly; the military, for one example, spends money in lots of ways, from paying soldiers to developing new weaponry. If you want to give soldiers a nice boost in their income or want to develop ways to keep them safer in the field, you can find the appropriate government programs to do so.
The end result is a closer connection between your tax money and the government programs that it helps to fund. If you can say to yourself, “I helped to pay those soldiers” or “My tax money helped to rebuild those roads”, it’ll help forge a better connection between your taxes and the services provided. It could also help to get those who don’t pay taxes in protest of some government program or another to pay, if they could be ensured that their money would only go to the programs they thought were worthwhile. (The program could also serve as a backdoor means of balancing the federal budget; if you can only put money towards government programs when the taxpayers ‘opt in’, it would make it more difficult to spend money beyond what is taken in taxes.)
Disclaimers and Notes
Before you go out and start to demand this type of tax program from the federal government (or to take to the comments and deride my utter misunderstanding of how the federal government and the tax system really works), bear in mind that this is just me, thinking out loud about government spending and taxes. I make no claims about the efficiency of this hypothetical system, or if it would be possible to implement such a system. I just had a thought about government spending and taxes, and wanted to share some thoughts.