Chocolate and Gold Coins

Monday, February 28, 2005

Choosing Your Budget

Andrew Hughes of Anyletter has an interesting proposal to allow people to voice their preference for how their tax dollars should be spent. Under his proposal, if you want more of your taxes spent on education and less on defense, you can specify that when you submit your taxes, and your tax dollars will be allocated according to your preference. That sounds like a nice idea, and I’m sure others have kicked it around, but my first reaction was that it sounded like a funny story I remember hearing. Here is my best recollection of the story, (I doubt it was true):

The Governor had a way with voters that even his opponents had to grudgingly admire.

Once while on the campaign trail, a man came up to the Governor and told him that he opposed the new program (whatever it was). He said he was a God-fearing man and he was upset to the point of illness that his tax dollars were going to be spent on something he so morally opposed.

The Governor looked the man in the eye with an expression of sincere compassion.

“I understand your feelings and respect them 100%. I’ll tell you what I’m going to do for you. You write down what you just told me in a letter. When you mail in your taxes, attach the letter and address it directly to me. I will personally see to it that your money is spent on something else.”

From the look in the citizen’s eyes, I could tell that the Governor had won another voter. And from the look in the Governor’s eyes after we left that citizen, I could tell that he wasn’t going to spend sleepless nights worrying about how exactly he was going to spend that concerned citizen’s taxes.

Suppose that 40% of the people want more social spending, 40% want more defense spending, and 20% think the government should decide. Then the social spenders and the defense spenders will more or less cancel each other out and the 20% of the budget that is uncommitted will cover any gaps left by the rest. The budget people won’t lose sleep about where to find the money. Enough money will be liquid to spread it to where the budget people would have put it anyway.

Now suppose that 1% think that 1% of the budget should go into preventing vegetable abuse and the rest of the country thinks that is ridiculous. The vegetable lovers can force the rest of the nation to support their cause by devoting 100% of their taxes to their pet project. They don’t really think that all of the budget should go to protect vegetables, but they will free-ride on everyone else’s defense and social spending to get an overall budget that reflects their preferences. In a way, we would be replacing tyranny of the majority with tyranny of the minority.

However, the main issue I have with this proposal is that it would not address the fundamental problem with government spending: we don’t have a plan B. In the free market, if I don’t like the information the Washington Post provides, I can always buy the New York Times. However, if I don’t like the information the CIA provides (and who does?), then I cannot opt to spend my taxes on CIA2. We can hope the government reforms CIA1, but CIA1 is the only choice we have, except for not having a CIA altogether. Free markets duplicate organizations so that if one becomes dysfunctional, we can shift to a more efficient version. We never get that choice with the government. So while I kind of like the idea of having some choice about how my tax dollar should be spent, unless I actually get some choices, all I have is Hobson’s choice.


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