Progressives have a problem: Voters detest taxes, and Republicans want to give them more tax cuts. Because Democrats believe in using government to promote the public interest, they will never “out-tax-cut” the right. So how can progressives win over the public when they’re always on the wrong side of the question of who’ll cut taxes more?
Here’s one idea: Promote the concept of tax choice. What exactly is tax choice? Simply put, it is a policy that would permit taxpayers to allocate a percentage of their income taxes to any portion of the discretionary federal budget. In a tax choice program, a taxpayer who wishes to support public education, for example, could send some of her income tax dollars specifically to that part of the federal budget, while a taxpayer who feels strongly about the military could allocate a portion of his income tax payment accordingly. (Ethan Porter proposed a variation of this idea—allowing taxpayers to direct additional tax money to programs of their choice when filing their tax returns—in “Can’t Wait ’Til Tax Day!” in the Spring 2010 issue of Democracy.)
According to experimental research I’ve conducted looking into the efficacy of tax choice, permitting taxpayers to allocate even a small percentage of their income tax to the programs of their choice generates significant increases in taxpayer satisfaction. Further, taxpayers’ allocations reveal a strong preference for more butter and fewer guns. Thus, allowing taxpayers some choice in where their taxes go may slowly shift the nation’s spending priorities toward more socially productive investments.
Beyond these effects, tax choice enables individuals to compete more effectively with moneyed interests in policy-making. The politics of tax choice are appealing as well, drawing on both libertarian and conservative themes of individual empowerment and agency, as well as the progressive belief in good government. Tax choice would resonate across a broad political spectrum, and directly engage citizens in the administration of the republic.
To understand how tax choice can advance progressive goals, it’s important to understand why people hate paying taxes so much in the first place. Psychology offers a number of explanations. First, tax payments involve distant goods and services that are experienced at a remove from the payment. Further, the benefits of tax dollars are highly diffuse and abstract. Many benefits are never directly seen by the individual taxpayer. So with taxes, one of the things that usually motivates people to open their wallets is notably absent: At the time of payment, we don’t see what we’re getting in return.
Still, if this were the only problem with paying taxes, we’d have an easy fix. Just show people what their tax dollars pay for and, assuming that any of those things are valuable, they should be happy to pay. In fact, the taxpayer receipt proposed in this symposium would likely create some improvements in taxpayer satisfaction.
However, there’s another major reason why people loathe taxes that would not be addressed by tax receipts: Taxes are compulsory, and Americans hate being told what to do. The discomfort we feel when our freedom is constrained is called psychological reactance, and it plays a big part in our hatred of taxes. Since tax payments involve zero agency or freedom, people are likely to dislike them even if they pay for goods acknowledged to be valuable. Even worse, reactance can generate negative emotions toward its source. In the context of taxes, reactance creates antipathy toward government, even among individuals who otherwise benefit from it.
How Choice Can Detoxify Taxes
Will tax choice work? To answer the question, I conducted a lab experiment and follow-up survey (supported by the University of Pittsburgh’s Katz Graduate School of Business) looking into taxpayers’ views on paying taxes. A total of 902 taxpayers—aged 20-91 and spread across a nationally representative range of ethnicities, income levels, marginal tax brackets, and political affiliations—participated in the study.
In the experiment, all respondents completed an online survey that asked them to identify their primary sources of media exposure, filing status, and income bracket, and another survey inquiring about their satisfaction with paying their taxes, captured on a seven-point scale ranging from “not at all satisfied” to “very satisfied.” The respondents were divided into four groups, each of which was given a different treatment.
A quarter of our respondents were simply told to fill out the two surveys and given no additional information or an option to allocate their tax dollars. We called this the “uninformed no-choice” group.
Another quarter of the experimental respondents did the same thing, but were also given a pie chart showing the breakdown of income tax dollars across the discretionary portions of the federal budget: military spending; agriculture, commerce, and transportation; international affairs; energy, environment, and science; housing and community development; education, training, and social services; and anti-poverty programs. We called this the “informed no-choice” group. (Note that a pie chart showing the distribution of federal spending is different from a taxpayer receipt: the latter is less abstract, showing how much of an individual taxpayer’s total tax payment, in the stark language of dollars and cents, went to different federal programs.)
Another group of respondents was not given this baseline information, but did have a chance to allocate 10 percent of their income tax dollars across those same budget categories. We called this the “uninformed choice” condition.
Finally, a quarter of the participants were shown the current allocation of federal dollars and given the opportunity to allocate 10 percent of their income tax payment across the same categories—the “informed choice” condition.
The results were fascinating. Both uninformed and informed choosers were significantly more satisfied with paying taxes than either group of no-choice taxpayers. According to our analysis, choosers’ increased satisfaction was associated with a sense that they had allocated in a way that benefited others. This sense of social benefit, in turn, predicted higher satisfaction with payment.
Perhaps more important, people given the opportunity to allocate a portion of their tax dollars had a weaker sense that paying taxes was a restriction on their freedom—they had lower general reactance toward taxes. These results held regardless of ethnicity, age, income, political affiliation, and conservative or liberal media exposure. As a whole, the results demonstrate that tax choice substantially increases individuals’ sense of benefit from paying taxes and reduces their sense of frustration toward payment in general.
More Butter, Fewer Guns
One significant benefit that tax choice portends is its moderating effect on the United States’s inflated spending on defense.
Defense spending currently consumes about 58 percent of the discretionary federal budget. In the last ten years alone, military spending has increased by 87 percent, dwarfing the rate of growth of any other federal outlay. The ten-year growth rate of military spending climbs to an astonishing 145 percent when the cost of the wars in Iraq and Afghanistan is included.
Scholars such as Andrew Bacevich, the late Chalmers Johnson, and William Pfaff have persuasively argued that these numbers do not represent popular will, but reflect the political influence of a highly entrenched and enormously powerful group of special interests that benefits from military spending. Survey results were consistent with this argument: Taxpayers who did not see the current allocation of the discretionary federal budget opted, on average, to devote less than 20 percent of their total allocable taxes to the military. And while self-identified Republicans were likely to allocate significantly more to the military than Democrats (25 percent v. 11 percent), neither approached anything like the current allocation figures.
Comparing actual current allocations to how our survey respondents said they would allocate tax dollars yielded some intriguing results. Respondents across the board shifted spending toward education, training, and social services—all areas that are major job-creation engines and paths to sustainable improvements in standards of living. Democratic respondents allocated 25 percent of their allocable tax dollars to education, training, and social services, while Republicans allocated about 21 percent.
Other categories also saw substantial gains. Most notably, energy, the environment, and science increased from approximately 4 percent to 16 percent of spending. Even Republican respondents showed substantial upward movement in this category, allocating about 14 percent to energy and scientific issues. Bipartisan consensus also prevailed on housing and community development funding, which more than doubled for both parties, from 5 percent to about 11 percent. Interestingly, dollars for anti-poverty measures did not change substantially, holding at approximately 13 percent of the budget overall, but higher among Democrats, who allocated 16 percent to such efforts, compared to 10 percent among Republicans.
Remember that the allocations, at least in the scenario sketched out in the study, are for only 10 percent of a taxpayer’s total payment. Legislators would still have a job to do. But tax choice would allow their constituents an opportunity to voice clearly their policy preferences. And from the results of our study, they want to scale back money spent on defense and scale up investments in other areas.
A Check Against Special Interests
Tax choice also has implications for the distribution of political power. That distribution is heavily weighted toward the wealthy, who have the resources to influence the political process. Their hold on power has only tightened in the wake of Citizens United v. Federal Election Commission, which endowed corporations with a First Amendment right to spend unlimited funds on speech advocating the election or defeat of particular candidates for federal office. By tying political expression to wealth, the Court distorted a political system based on the principle of “one person, one vote.” Under Citizens United, the more dollars you have, the more you can spend to secure the election outcomes you prefer. And that is exactly what corporate interests did. As the Sunlight Foundation reported in January, political groups that depend on corporate cash spent nearly $500 million in 2010, up 66 percent from the $300 million spent in the 2006 midterms.
In their decision, the Citizens United majority reassured us that “[t]he appearance of influence or access will not cause the electorate to lose faith in our democracy.” But in fact, the electorate has never been more cynical about what their government does and whom it does it for. In the mid-1960s, less than a third of Americans agreed that “government is pretty much run by a few big interests looking out for themselves.” By 2008, the share was more than 70 percent. Virtually everyone senses what the American Political Science Association documented in 2004: “Citizens with lower or moderate incomes speak with a whisper that is lost on the ears of inattentive government officials, while the advantaged roar with a clarity and consistency that policy-makers readily hear and routinely follow.”
Tax choice restores some of the citizen’s voice. While hardly a comprehensive solution, tax choice can mitigate the problem of unequal democracy by permitting individual taxpayers to speak with their taxes, without draining their own disposable income.
Let’s look a bit more closely at how tax choice could do this by using the Environmental Protection Agency (EPA) as an example. The agency’s 2010 budget was approximately $10.5 billion. Now suppose, as our research suggests, American taxpayers choose to allocate 16 percent of their allocable tax dollars to “the environment, energy, and science,” directing 30 percent of that amount to augmenting the budget of the EPA. Assuming total tax collections of $2 trillion (which is a little less than the amount collected in 2007), total allocable taxes are $200 billion, of which taxpayers direct $32 billion to the environment, energy, and science, and $9.6 billion specifically to the EPA. In the span of one tax season, the budget of the EPA nearly doubles. Suddenly, there’s a new sheriff in town. Simply by permitting voters to put a portion of their tax dollars where their hearts are, tax choice marshals the collective resources of society and fortifies the institution that stands for the public interest. That is real power, and it is power where it is supposed to reside—with the people.
An Idea That Merits Exploration
We know it’s a good idea, and we know that it will serve progressive goals. The question is: Is it workable? Can an element of choice actually be thrown into our tax payment system?
As with many new and bold ideas, there will be skepticism, but the idea is certainly feasible. Technology should make it easier to implement choice. Online tax filers could be directed to a Windows-like list of folders, beginning at the highest level of generality. Taxpayers could then click down as far as they’d like, allocating a percent of their dollars at any level they choose. For paper filers, an ancillary list could be added to the already lengthy paper filing form, where taxpayers could identify the categories into which they’d like their dollars divided. Again, these categories could be provided at very general to very specific levels. Such a procedure would not be unfamiliar to many taxpayers, as it parallels the type of process they undertake when completing their own 401(k) allocations.
Because a system of individual tax allocations could cause a shock to the budget system, we need to proceed carefully. The Congressional Budget Office can analyze which parts of the budget could be left open to the allocation process while causing the least upheaval. Using this information, a pilot program could offer a random sample of taxpayers tax choice. In addition to substantiating the projected budgetary impacts tax choice may have, these individuals’ experiences would inform improvements in the ultimate program design. Alternatively, a state or municipal tax system could be used as a “test market” for tax choice, with taxpayers allocating a portion of state or local taxes to a range of priorities closer to home. Such laboratory experiments should help inform how tax choice on a larger scale would work.
Tax choice appeals to Americans’ appetite for choice and freedom. It co-opts the traditionally conservative and libertarian motifs of greater personal liberty and less power for Washington. It directs public resources to socially productive investments and away from the military-industrial complex, which strong majorities of taxpaying Americans in both parties believe is massively overfunded. And it will begin to redefine Americans’ conception of government—not as a beast to be starved but a self-determining enterprise in which the American people are deeply invested.