Sunday, November 14, 2010

A Liberal Solves the Budget Deficit

The NY Times has an interactive page which permits you to try to solve the budget deficit by choosing among various options to reduce spending and increase revenues.  Here's my solution.  [Updated: here's another try at the solution.]As a good liberal I'm relying on cuts to military spending, returning taxes to Clinton levels, a carbon tax and some tax reforms, and relatively minor tweaks to Social Security and other programs (though I do chop farm programs--sorry  FSA. :-)

As it comes out I'm roughly 60 percent taxes, 40 percent spending cuts.  If it for real, I'd probably phase in the changes gradually.

[Note: When I tried to recreate my solution, thanks to my commentor for pointing out the failure, I probably made different decisions the second time through.]

39 comments:

  1. Allowing tax payers to vote with their taxes would solve the budget deficit in real life.

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  2. Can't buy it. I remember when protests over Vietnam included refusing to pay taxes for DOD. At bottom, if the U.S. is to be a nation, we've got to often live with others' priorities. I don't like most of what the Republicans stand for, particularly their new Congresspeople, but I've got to live with their increased power over the next 2 years.

    It's like the difference in basketball between five ball hogs and five team players.

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  3. Pragmatarianism (voting with your taxes) is all about ceteris paribus. Democracy, and everything else, would be exactly the same.

    We still would have gone to Vietnam but people who supported the war would have been responsible for funding it. Conservatives would have allocated more of their taxes to the war while liberals would have allocated a lot less, if any, of their taxes to the war.

    Tax payers would effectively help check the power of congress and any tyranny of the majority.

    You can think of it as compromise between liberals and conservatives. Liberals recognize that taxes are necessary while conservatives want to have the choice what they do with their money. Add them both together and you have pragmatarianism.

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  4. Still disagree, probably on several grounds, but here's one. Take the way I balanced the budget--I chopped a lot of military. Presumably there's a lot of conservatives out there who wouldn't cut the military, they'd cut something else. Under your proposal, as I understand it, my taxes would pay for education and the EITC (for example), while conservative Right's taxes would go for a bunch of Marine hardware.

    All's fine so far. But suppose we add into our mix citizen Slick, who says, well Harshaw is paying for education, while Right is paying for the military. I'm satisfied with the education and the military they'll buy for the U.S., so I won't pay any taxes. What we then have, with Mr. Slick, is a freeloader. Under your proposal, there's nothing Mr. Right and I can do--he gets off free.

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  5. The only thing pragmatarianism superficially changes is that people would be able to decide how their taxes were allocated. The free-rider problem is certainly a reasonable justification for making everybody pay taxes.

    I can't accurately predict how people would allocate their taxes any more than I could accurately predict how people would spend their money. If I could I'd be a millionaire.

    But I do know that two heads are better than one. If a relatively small group of politicians could process as much information as the invisible hand then there would be at least one example of a command economy.

    Not that I would advocate completely taking the allocation decisions away from congress. I would just let each tax payer decide for themselves whether they wanted to allocate their taxes themselves or let congress allocate their taxes.

    What are your other objections?

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  6. I'll switch to mechanics. If I understand, I figure my tax bill--call it $10,000--and your proposal doesn't allow me to reduce my taxes, just to allocate them. As a bureaucrat I like round figures. Then I decide, okay I want $5,000 for education programs, $3,000 for EITC, and $2,000 for NIH. So I stick those parameters in my 1040 and ship it off to Treasury. Treasury adds up all the figures to compute a national figure. The way it comes out, NIH gets 300 percent more than they did last year, education gets 300 percent, EITC gets 100 percent, and nobody designated any money to go to either USDA or the Treasury Department. :-)

    Now what do we do?

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  7. Have you seen this 6 minute youtube video of Milton Friedman saying which of the 14 cabinet department he'd keep or abolish?

    Given that he'd keep the Treasury Department I'm sure some people would remember to fund it. Given that he'd abolish the USDA I wouldn't be too worried if people forgot to fund it. But how likely is it that everybody would forget anything?

    In your sidebar I noticed this link...In Which I Overbalance the Budget. Her method involved eliminating or cutting subsidies. In terms of the feasibility of her budget plan here's what she said..."any politician who tried to enact my plan would be carried away by villagers waving pitchforks long before he'd finished reading off the list of tax increases and budget cuts". Incidentally, your link to your budget solution doesn't display your solution. Didn't realize that until I clicked on her solution.

    On the logistic side of things. I'm leaning towards paying each government organization directly rather than sending our taxes to the IRS.
    Each government organization website would have a fundraising progress bar and a budget justification. You could send them you're money, they'd give you a receipt and notify the IRS of your payment.

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  8. Thanks for pointing out my goof on the link to the solution--I've updated to correct it.

    I can't take Friedman's video very seriously--he really wants no meat inspection? Actually he makes a good case for me, not you. Note how he starts parsing and splitting as he goes on. Even for a dedicated libertarian like him he can't make decisions on a departmental basis. For the same reason any taxpayer won't be able to make decisions on a departmental basis. Someone will want to fund the Forest Service, but not school lunches. Someone will want to fund the food stamp program, but not conservation programs. Someone will want to fund meat inspection but not animal health.

    Of course I agree with McArdle, my solution is totally impractical to pass.

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  9. Tax payers would be able to allocate their taxes on three different levels. The top level would be congress, the middle level would be the cabinet departments and the bottom level would be specific government organizations.

    A tax payer could give all or some of their taxes to congress and congress would decide where the money was most needed. Or a tax payer could give all or some of their taxes to the departments and the departments could decide where within their department the money was most needed.

    The levels that you allocated your taxes to would reflect two things. 1. How informed you were and 2. how much you trusted the decisions of congress and/or the heads of each department.

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  10. A question, before I get contrary: Would you apply the system at the state and local level?

    I see the system you're outlining as an administrative nightmare; I shudder just to think of trying to ensure that Citizen Doe paid all her taxes due, when she writes checks to 15 different places. Violates the KISS principle. And where is the money to pay for this tax enforcement coming from?


    If I understand, the motive is to honor a citizen's values and intelligence: if I think the best use of my money is to give it to NIH for Alzheimer's research, that should be okay. And that's true even if it means a 75 percent reduction in spending for things like roads or defense or whatever. Seems to me you're assuming the net result of all taxpayer decisions will work out okay. I don't have that faith.

    You're treating the nation as a collection of individuals. I have problems with that.

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  11. Well...I've considered it more at the federal level...but it would make sense to first test it out at the local level.

    As a programmer I can vouch that an automated system would not be a serious obstacle. Currently 40% of households with internet access pay their bills online...so maybe we'd wait until 95% pay their bills online.

    Oh, I didn't have any faith either. But each person I've proposed this scenario to has unintentionally helped me appreciate how their concerns about funding cancel each other out.

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  12. What I think you're proposing is a system whereby the taxpayers who are passive (don't know, don't care, have more important things to do) abide by the decisions of the people as expressed through Congress while the taxpayers who are assertive (i.e., have a bee in their bonnet, spend all their time on politics, have nothing better to do) get to choose where their money goes. In our current system the assertive group have more power because they lobby, donate, form groups, etc. etc.

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  13. In the "passive" category I would add those with high confidence in congress and in the "assertive" category I would add those with low confidence in congress.

    A few months ago I was hiking with a liberal friend who is in her 30s. She studied geriatrics or some related field and she was going on and on about how there should be higher taxes and more public goods for the elderly. A couple hours later she made me laugh out loud because she told me that she was going to deduct everything she could in order to pay less taxes.

    Would my friend deduct everything she could if her taxes helped provide public goods for the elderly?

    Every public good has its ardent supporters...yet people hate paying taxes. By allowing tax payers to choose how their taxes are spent they would be transformed into donors.

    When tax payers are donors...and public organizations depend on donations...what percentage of tax payers would fall into the "passive" category?

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  14. Do I understand the purpose is to make people feel good/better about paying taxes? What effects, if any, do you see on the current allocation of money among the various purposes? How do you propose to handle taxes not paid on the 1040--FICA taxes, sales taxes, excise taxes, tariffs?

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  15. I'm a member of two local botanical gardens...the LA Arboretum and the Huntington Gardens. The typical libertarian approach would be for the state to sell off the LA Arboretum. Their reasoning is that, due to competition, private organizations will always be more efficient than public organizations...and given the existence of the Huntington...clearly there's private incentive to provide this good. In other words, the LA Arboretum is inefficient and redundant.

    From the pragmatarian perspective, it doesn't matter whether an organization is public or private. What matters is allowing the tax payers who value botanical gardens to decide for themselves whether the LA Arboretum is inefficient and redundant. Given that I'm a member of both gardens, clearly I personally do not believe that the LA Arboretum is redundant and we've already established that donors care about efficiency.

    The results? Government organizations would operate more efficiently and tax payers would be less inclined to skimp on their taxes...given that their taxes would be directly tied to the public goods that they most value.

    The effects on the current allocation? Steve Ellis, the vice president of Taxpayers for Common Sense, said that the current allocation is decided by "political muscle rather than merit". The more accurate his observation is...the greater the amount of disparity that there would be between the current allocation and the pragmatarian allocation.

    Regarding all other revenue generated by the state...I'd say just let the politicians decide how it should be allocated. We would then be able to compare how much their allocation decisions differ from the decisions of tax payers.

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  16. Sorry I'm not following your example. It seems both of your arboretums charge fees for visits but my googling doesn't show the proportion of their total budgets is covered by fees, versus taxpayers in the one case or the endowment in the other. I assume you're saying, if your proposal was adopted, your LA taxes (income taxes?) would go to the arboretum. If you and others didn't designate enough to cover the budget, then LA should sell the arboretum?

    I see you're in California: do you see the referendums you have as being decided by "political muscle" or by enlightened voters? :-)

    I have no mercy for people who "skimp on taxes"--I hope Mr. Snipes serves his full term. :-(

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  17. If local tax payers that value botanical gardens did not allocate enough of our taxes to keep the garden alive then why would LA keep the Arboretum? Personally, if I felt the survival of the LA Arboretum was genuinely threatened then I would volunteer at the garden, help them operate more efficiently and try and convince my friends to allocate more of their taxes towards the Arboretum. My friends would then in turn argue that my taxes were more needed to fund everything from garbage collection to public museums.

    The invisible hand is infinitely more effective than the visible hand at efficiently allocating resources.

    Regarding referendums...tax payers are better educated than the general public. The general public can say that marijuana should be illegal but it would be up to tax payers to decide how much of their taxes they wanted to allocate to the war on drugs.

    Making an example of Mr. Snipes and others does nothing to address the basic problem that tax payers are alienated from the positive impact of their taxes. We've heard of anonymous donors but who donates money to anonymous organizations?

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  18. Generally,IMHO, you overvalue the market. See Brad DeLong's post here.http://delong.typepad.com/sdj/2010/12/what-do-econ-1-students-need-to-remember-most-from-the-course.html The problem in applying markets to government is that "public goods", as the economists call them, aren't rivalrous or excludable so the market doesn't work well there.

    Okay, back to the arboretums. Suppose the budget includes just two things: the arboretum, and the LAPD, nothing else. You love the arboretum so that's where you designate your taxes. But not enough of your citizens share your opinion, so LA sells the arboretum. Next year, with only the LAPD in the budget, would you be forced to designate your taxes to it? Or would you get out of paying taxes?

    Now flip the example, everyone loves the arboretum and nobody loves the LAPD, so all the taxes go to the arboretum. Does the arboretum spend them all and the LAPD is disbanded?

    If taxpayers are alienated from the services government provides (I'm not, BTW) their recourse is to organize, into tea parties, or whatever, and vote out the people they don't like and vote in the ones they do. If enough people share their opinion, they'll constitute the majority. And I, being in the minority, will have to live with the decisions they make. But as long as we have taxes and laws, Mr. Snipes needs to pay his taxes, just as the rest of us do.

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  19. If I over valued the market then I would be an anarcho-capitalist. Also, the only public good that isn't excludable is national defense. In terms of direct benefits, it's pretty easy to exclude consumers from every other public good. However, an anarcho-capitalist would tell you that we would get by just fine with a completely voluntary militia.

    The problem has to do with levels of production. There's no doubt that if we got rid of public defense that a voluntary militia would be created. However, without coerced revenue (taxes) it would receive a lot less funds and would produce lower levels of defense. The same concept applies to all the other public goods.

    To fix the problem of levels of production all that is required is one step...coerce people into allocating a portion of their income towards the public goods of their choice. That's it. We take it one step further and elect representatives to decide how our taxes should be spent.

    Regarding the arboretum and the LAPD...tax payers would have to allocate their taxes towards the public goods that they valued more than the rest.

    It's slightly trickier to guess how people would choose between "investing" in prevention or cures. Given a choice, would you allocate more of your taxes towards after-school programs that target high risk youth...or towards the police...or towards prisons? Would you allocate more of your taxes towards public hospitals or towards public awareness on healthy eating and exercise?

    Regarding Mr. Snipes, you won't get any argument from me that laws should be followed. In terms of tax alienation though...just because you vote for somebody does not mean that they'll be elected and just because somebody is elected does not mean they'll abide by their campaign promises.

    Hmmm...here's another way of thinking about it. This Christmas you and I are going to purchase some gifts for our families and friends. For the purpose of this exercise let's assume two things...1. each gift is matched perfectly to each recipient and 2. we purchase 10 gifts each for a total of 20 gifts.

    Now let's imagine that we each derive a "warm glow" benefit value of 100 for picking the perfect gifts. What would happen if you and I had to agree on purchasing the same 10 gifts? The gifts would not be as perfect so our "warm glow" benefit would be reduced. What if we added a third person to the mix...and so? By the time we got to the 100th person the gifts would be really generic and our warm glow value would be down to say around 10 per person.

    100 people individually selecting gifts would result in a total warm glow value of 10,000. 100 people collectively selecting gifts would result in a total warm glow value of 1,000. Now imagine the warm glow disparity if the entire country had to agree on purchasing the same 10 gifts.

    We can take it a step further and imagine that we all had to vote for 10 people to decide which 10 gifts everybody in the country had to purchase. Boy, can you imagine how many free "samples" those 10 individuals would receive from various companies trying to sway their decisions?

    Taking the element of choice out of Christmas would suck all the joy from the holiday. It's something the Grinch would do. Conversely, giving tax payers the choice which "gifts" (public goods) they "purchased" for their community/country would add a very significant amount of joy to Tax Day.

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  20. If I over valued the market then I would be an anarcho-capitalist. Also, the only public good that isn't excludable is national defense. In terms of direct benefits, it's pretty easy to exclude consumers from every other public good. However, an anarcho-capitalist would tell you that we would get by just fine with a completely voluntary militia.

    The problem has to do with levels of production. There's no doubt that if we got rid of public defense that a voluntary militia would be created. However, without coerced revenue (taxes) it would receive a lot less funds and would produce lower levels of defense. The same concept applies to all the other public goods.

    To fix the problem of levels of production all that is required is one step...coerce people into allocating a portion of their income towards the public goods of their choice. That's it. We take it one step further and elect representatives to decide how our taxes should be spent.

    Regarding the arboretum and the LAPD...tax payers would have to allocate their taxes towards the public goods that they valued more than the rest.

    It's slightly trickier to guess how people would choose between "investing" in prevention or cures. Given a choice, would you allocate more of your taxes towards after-school programs that target high risk youth...or towards the police...or towards prisons? Would you allocate more of your taxes towards public hospitals or towards public awareness on healthy eating and exercise?

    Regarding Mr. Snipes, you won't get any argument from me that laws should be followed. In terms of tax alienation though...just because you vote for somebody does not mean that they'll be elected and just because somebody is elected does not mean they'll abide by their campaign promises.

    Hmmm...here's another way of thinking about it. This Christmas you and I are going to purchase some gifts for our families and friends. For the purpose of this exercise let's assume two things...1. each gift is matched perfectly to each recipient and 2. we purchase 10 gifts each for a total of 20 gifts.

    Now let's imagine that we each derive a "warm glow" benefit value of 100 for picking the perfect gifts. What would happen if you and I had to agree on purchasing the same 10 gifts? The gifts would not be as perfect so our "warm glow" benefit would be reduced. What if we added a third person to the mix...and so? By the time we got to the 100th person the gifts would be really generic and our warm glow value would be down to say around 10 per person.

    100 people individually selecting gifts would result in a total warm glow value of 10,000. 100 people collectively selecting gifts would result in a total warm glow value of 1,000. Now imagine the warm glow disparity if the entire country had to agree on purchasing the same 10 gifts.

    We can take it a step further and imagine that we all had to vote for 10 people to decide which 10 gifts everybody in the country had to purchase. Boy, can you imagine how many free "samples" those 10 individuals would receive from various companies trying to sway their decisions?

    Taking the element of choice out of Christmas would suck all the joy from the holiday. It's something the Grinch would do. Conversely, giving tax payers the choice which "gifts" (public goods) they "purchased" for their community/country would add a very significant amount of joy to Tax Day.

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  21. How would you exclude citizens from the benefits of clean air, clean water, vaccinations, education, transportation, justice systems, etc. etc.? Seems to me most government expenditures have benefits which are not excludable. I don't know what an economist would say.

    I don't think you answered my question in my previous comment. The Combined Federal Campaign (United Way) provides an example. You can designate your contribution to up to 5 individual organizations or, not designate and the money just goes into one big pot. As I understand it, they claim to honor the designations but use the money from the big pot to fill up the allocations. What it means is you get lobbied by organizations to contribute.

    I sort of follow your Xmas gift example, but most of my warm glow comes when the gift pleases the recipient. If the wisdom of the crowd would come up with a gift more pleasing to the recipient, that would increase my glow, not dim it.

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  22. From wikipedia..."In economics, a good or service is said to be excludable when it is possible to prevent people who have not paid for it from having access to it."

    There are plenty of companies that supply bottled water, education, vaccinations, transportation, arbitration, etc...so those goods do not strictly meet the definition of a public good. Clean air meets the definition, but environmental NGOs tackle that issue.

    It's all about values. If you ask a random person how much they valued public goods...how accurate would their response be if they understood that their response would determine how much of their money you'd take to supply that good?

    Conversely, if you first took X% of their money and then asked them how much they valued public goods...would they have any incentive to lie about their values?

    Coercing people to contribute to the public good is all we need to do. We don't need to decide for them which public goods they value.

    My Christmas example didn't do the trick. Well...how about the analogy of the blind men and the elephant? They each felt a different part of the elephant and argued over what they were feeling. Right now liberals and conservatives look at our country and are arguing over what they see. So we end up averaging their views. If the blind men averaged their views they sure wouldn't end up with an elephant.

    Reality shouldn't be about averaging...it should be about summing. The blind men needed to add their perspectives together...like pieces of 3D puzzle that would form an elephant.

    How much tax money should be allocated to public education? There are two answers. The first answer is arrived at by averaging the perspectives of the majority. The second answer is arrived at by summing the perspectives of each tax payer. It's impossible for the first answer to more accurately reflect reality than the second answer.

    The more accurately somebody's spending decisions reflect their reality the more warm glow that they'll feel.

    Not sure if I'm understanding your United Way question. With the pragmatarian approach tax payers would be able to divvy their taxes however they wanted among three tiers...Congress, the Cabinet Departments (ie Dept of Education) and individual government organizations (ie UCLA).

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  23. Ah, I think I see part of our difference. This is how I look at the things you list as non-excludable goods. For example, I got my flu shot this fall. It benefits me by reducing the chance I'll get flu. But it also is of benefit to everyone else in my community, because if enough of us in our community get the shots, there won't be an epidemic. (I'm not sure the wikipedia discussion recognizes this sort of benefit. In some ways it's a network effect.)

    Similarly, if everyone in my community gets a good education, I benefit, because there will be more good ideas, more progress (maybe even a vaccine for Alzheimers).

    And there's no way for the recipient of the vaccine or the education to control and monopolize the benefits to the community. It's inherent in the situation.

    Sorry, the elephant doesn't help me much, nor does averaging versus summing. After all, the first step in averaging is summing. :-)

    Seems to me we need people to contribute to the public good, but coercion should be the last resort. People should realize they "should" pay their taxes, serve on juries, vote and feel guilty if they don't. And we need a good enough system of determining what the public good is that most people will be content with it most of the time. We have that, Somalia doesn't.

    To follow up on the United Way--suppose one year many of those who designate give money to an AIDS organization which was in the news, and few people give money to the Red Cross. And then there's the pot of undesignated money. My understanding was that the CFC/United Way wouldn't simply allocate the undesignated pot among organizations without considering how the designations had gone. So in this example, the AIDS organization might get no money from the pot, while the Red Cross got a lot.

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  24. I definitely agree that there are indirect benefits. However, from the pragmatarian perspective...debating whether a good should be public or not is as silly as sitting around a bowl of pudding debating whether it tastes good or not.

    The pragmatarian approach is to just taste the pudding. Each tax payer would use their taxes to judge whether the private or public sector was better at providing a public good.

    Let's take healthcare for example. Liberals say public healthcare is the "best" option while conservatives say that private healthcare is the "best" option. I'm perfectly confident that tax payers are capable of deciding for themselves which is the "best" option.

    Public healthcare, by virtue of being not-for-profit, could certainly be offered at lower cost than private healthcare. The amount of taxes that people allocated to public healthcare would determine the percentage of the public that qualified for coverage.

    In reality though...I have no idea whether the profit margin of private healthcare is greater than the fraud/waste/abuse margin of Medicare. But I am absolutely certain that the American public would benefit if private and public healthcare were forced to compete for funds.

    What I have trouble understanding...is why people who are so completely confident that their options are the "best" wouldn't be willing to put it to the test. Maybe it's because ideology and "winning" have become more important than results?

    If the Salvation Army truly is "Doing The Most Good" then shouldn't it receive more funding than organizations that are doing less good?

    Once people are coerced into setting aside a percentage of their income for the common good...it doesn't make any sense that their behavior in the public goods market would differ from their behavior in the private goods market. Given a choice between two identical products they'll invariably choose the less expensive product. And the more they value a product, the more money that they'll be willing to pay for that product.

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  25. Hmm. Okay, focusing on health care: we agree, it seems, that healthcare is good. And that healthcare has externalities. It's better for me, all else being equal, to live in a society of healthy people who will be more productive, have better ideas, be more pleasant to live with, etc.

    What I'm not clear on is whether you're saying: okay, let the state (ie. Feds + state+ local) require the citizen to spend X percent of income on goods and services which are arguable either public goods or have positive externalities, like healthcare? But those goods and services can be obtained either from a governmental organization or a nongovernmental organization.

    Or is this an example of what you want: parents have to educate their child through age X, they can either send the kid to public school and pay school taxes or to private school and pay out of pocket, but not pay taxes?

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  26. Pragmatarianism only changes one thing...it allows people to decide how their taxes are allocated. It's completely neutral on the tax rate and completely neutral on whether a good should be public or not.

    You're not necessarily utilizing the public goods you allocate your taxes to. It's more like investing. With regards to education, healthcare, etc...there are four possibilities...a parent might send their kid to private/public school and allocate some/none of their taxes to public education.

    The current system is completely backwards with Democrats trying to cut defense and Conservatives trying to cut Medicare and Social Security. Instead of trying to cut things we do not value...we should focus on funding things that we do value.

    If it was up to me I'd completely cut the $6 billion (over 5 years) in sugar subsidies. From my perspective it seems that a small group of farmers in Florida benefits at the expensive of all the companies in America that purchase sugar as inputs. The higher costs are of course passed on to consumers. The sugar farmers then in turn put some of their profits back into lobbyists.

    With the pragmatarian approach, if those sugar farmers want my tax money then they would have to create advertisements on TV in order to convince me that their need is more meritorious than the need for public education, health etc. The economic term for this is "opportunity cost".

    Of course, studies subsidized by sugar growers would do absolutely nothing to convince me, or any other person who picked up critical thinking skills in school, of the legitimacy of their need.

    Pragmatarianism wouldn't be that different from people making donations to non-profit organizations. The only difference would be that a percentage of your income would have to go to a certain subset of non-profits.

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  27. Bear with me because I'm still trying to understand. As a thought experiment, suppose we applied your proposal just to the field of education; how would it work (forgetting for the moment that local, state, and federal governments all currently play a role). Suppose the government said: citizen, you have to pay 5 percent of your income to support education. From what you've said, I understand you to be saying that person A could send his one child to a private school using that 5 percent, plus whatever was needed. Person B could send her 4 children to public schools, using the 5 percent. Person C who is childless could give his 5 percent to any school or college he wanted. Person D could send her child to public schools and give her 5 percent to the college from which she graduated. Is that generally correct?

    As for sugar, I'd observe there are cane growers outside of Florida. More importantly sugar beets are an important crop in a number of states (MN and Dakotas if memory serves), which helps to generate the votes and passion needed to preserve the sugar tariffs. It's an instance where the narrow interest of the few may trump the interest of the many, which ironically is a fault I see in your proposal. :-)

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  28. Not quite. Tax payers would have complete discretion how they allocated their taxes among the various government organizations. When it comes to education the four possibilities are as follows...

    A parent might send their kid to...

    1. ...private school and allocate some of their taxes to public education. This is similar to my example of the two local botanical gardens. If I could only visit one botanical garden it might be the Huntington...but because I really value botanical gardens I might allocate some of my taxes to the LA Arboretum. Even though Obama sends his kids to a private school, he would most likely allocate a large percentage of his taxes to public education.

    2. ...private school and allocate none of their taxes to public education. The parents value other public goods more than they value public education.

    3. ...public school and allocate some of their taxes to public education. The parents do not believe that public education is receiving sufficient funds.

    4. ...public school and allocate none of their taxes to public education. The parents believe that public education is receiving sufficient funds.

    What happens if a business owner hires an employee that has a high-school diploma, yet can't do basic math? With a pragmatarian system, the business owner would consider this market signal when deciding how to allocate their taxes. We don't support public education so people can have pretty diplomas sitting on their walls...we educate people so they can get jobs. Parents want their kids to get the best jobs and business owners want a large supply of suitably educated people to hire from.

    It's impossible for congress to respond to the myriad of market signals that parents and business owners would be able to easily respond to. Just like with making donations, you wouldn't have to wait until Tax Day to pay your taxes. At any time you witnessed a "need", you would be able to visit the relevant government organization website and make a "donation".

    Tyranny of the minority is certainly something to consider...but I haven't been able to imagine a single applicable scenario. It's one thing for farmers to use their taxes to subsidize themselves...but it's a completely different story if they use my taxes for their financial gain.

    Would all the wealthy tax payers put all their taxes towards one public good? If so, which single public good would they all agree on? How would it tyrannize the majority?

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  29. Okay--so someone who wants his child to go to private school can't devote his taxes to the desire. I'm clear on that.

    I've forgotten what I had in mind yesterday. :-{ The problem of getting old.

    My bottom line is a prediction: if your proposal were to be carried out, a whole range of very mundane governmental activities would not be funded while a series of high-interest sexy activities would be overfunded. For example, NIH/CDC activities to fight AIDS and Alzheimers would be heavily funded (not that I'd mind the Alzheimers) but routine vaccinations would not be funded. Police SWAT teams would be funded but not the county clerk's office. Infrastructure generally would be ignored.

    You rely on the idea of the market, but as I've tried to say before, market prices and market costs don't capture a range of externalities. So we can't rely on "market signals".

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  30. Do you ever get to the point where you're not sure whether you're more tired or more hungry? If I could be perfectly satiated and rested without ever eating or sleeping I'd gladly give up those two mundane activities. As it is though, those activities are essential and it's impossible to ignore, for very long, their associated signals.

    Every mundane government activity has its associated signals...potholes, long waiting lines at the DMV, needing a copy of your title for a loan, etc.

    We're not all equally affected by signals. People who can handle skipping meals/sleep are better suited to being in the infantry than people who can't. Somebody who works at home is not as affected by potholes as somebody who drives around all day.

    The amount of taxes allocated to the various government activities should accurately reflect how much society values those activities. Value is best discerned by asking each tax payer to decide what they would be willing to sacrifice for the things they value.

    How many potholes would you be able to endure for a cure for Alzheimer's? Would you forgo garbage collection to fund Alzheimer's research?

    What would happen if garbage collection only received enough funds for the garbage to be collected once a month? Pressure would proportionally increase on individuals to recycle and compost more. There would also be greater incentive to purchase products with biodegradable packaging.

    Forcing tax payers to consider the opportunity costs of their decisions is the only way for the public goods allocation to accurately reflect what society values.

    The negative externalities of allowing a small group of public officials to decide how taxes are allocated far outweighs the negative externalities of the pragmatarian approach. The four prime negative externalities of the current system are...
    1. Ineffectiveness: the whole public healthcare debate is a perfect example. We debate whether the pudding is good rather than just tasting it.
    2. Inefficiency: as seen with the sheer quantity of corruption, fraud, waste, and abuse associated with the current system. The only difference between NGOs and GOs is that people have a choice which NGOs they contribute to. Give people a choice and they will expect full accountability and transparency of the GOs that they choose to donate their money to.
    3. Inaccuracy: without putting price tags on public goods it's impossible for the current system to even closely reflect people's values.
    4. Intangibility: on the benefit side...the large majority of tax payers don't feel good when they contribute to the common good (pay taxes). Allowing tax payers to choose the gifts they consider that society most essential and they will feel good about their contributions. On the cost side, as seen here in California... tax payers want more public goods but less taxes.

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  31. There's a very limited scope for your proposal, IMHO. For example, I pay for my water and sewer service to a governmental organization. It's reasonable; the more efficiently I use my water the less I pay. But fees for government services, which would seem to be the pure case of your proposal, don't seem to work that well. A neighboring county proposed establishing a $500 fee for use of ambulance services; a proposal rather quickly shot down. The federal transportation fund is based on the federal gas tax, but as cars become more efficient the gas tax doesn't work as well. And transportation experts say efficiency is served by moving people from private cars to mass transit; that would be hard to do under your proposal. The Dulles airport was built in the 1950's and was for a long while considered a white elephant. It could never have been funded under your proposal, but it's now proving its worth. Asking the public to vote with their tax dollars means many fluctuations in funding, fluctuations which will make it impossible to run services efficiently.

    On your four points:
    1 I think you confuse the fighting over changes to health care with the delivery of healthcare. When you look at healthcare as a whole, the different pieces are operating effectively in accordance with American values for freedom, choice, weak government, indirect effects, etc.
    2 Yes, Ronald Reagan has much to answer for; his mantra of waste and corruption is pervasive but wrong. The reality is that government is no more corrupt and fraudulent, there's no more waste and abuse than there is in the other sectors of the society. Have you ever checked the organizations which evaluate the different charities/NGO's on effectiveness? The public doesn't demand full accountability and transparency of NGO's or of private firms.
    3 As I've said before, you can't effectively price most public goods. The results of a representative democracy come reasonably close to reflecting the people's values.
    4 I understand California is messed up, which may give you a different slant on government. Taxpayers don't need to feel good about paying their taxes just as they don't need to feel good about paying for car repairs. They do need to feel the tax system is reasonable and the government is effective.

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  32. The scope is pretty broad. It's relevant anytime taxpayers disagree over which government organizations need more/less funding.

    Here's a thought experiment...can you imagine how absurd it would be if donors to PETA and donors to the NRA had to pool their donations and elect representatives to decide how to split the money between the two organizations?

    It's definitely possible to effectively "price" public goods by forcing taxpayers to consider the opportunity costs of their allocation decisions.

    For example, you value both the Dept of Agriculture and the NIH. How much of one would you be willing to forgo for the other? Every dollar you allocated to the NIH would be a dollar that you couldn't allocate to the Dept of Agriculture...and vice versa.

    If we force every taxpayer to consider the opportunity costs of their allocation decisions we're left with an allocation of public goods that more accurately reflects the true values of taxpayers.

    Going back to your blog post...I created my own tax allocation survey as well.

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  33. Not sure whether I'll be consistent with my past comments. I don't agree the object of democratic government is to match expenditures with the people's preferences. For example,I'd be willing to allocate some of my taxes to maintaining a national database of all gun owners and to fund abortions. Does that mean I should be able to do so?

    Obviously, no. The government, operating according to the Constitution, etc. has made the decision there will be no such database and no such funding. As a citizen I have to accept such decisions. And I do, if grumpily. But note that means the expenditure of public funds does not match my values.

    If I accept such decisions, the same principle means I accept the allocation of funds among various purposes.

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  34. In a pragmatarian system voters would determine the functions of government and taxpayers would determine which functions to fund.

    So if voters decided that they wanted to maintain a national database of gun owners and allow abortions then it would be up to each and every taxpayer to decide how much of their individual tax money they wanted to allocate to those two functions.

    What is the value of forcing millions and millions of taxpayers to consider the opportunity costs of their individual tax allocation decisions?

    Is it worth it to genuinely consider and understand the tax allocation disparity between the current system and a pragmatarian system? Here's my blog entry where I consider whether this disparity is divine or delusional.

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  35. Do you have any chance of convincing me of your correctness? No. Do I have any chance of convincing you of my correctness. Equally no.

    A suggestion: the White House has a site where citizens can post their suggestions and try to elicit support from others. https://wwws.whitehouse.gov/petitions
    Why not try your proposal there?

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  36. Think about the blind men and the elephant. Each were feeling a different part of the elephant so they argued over what it was that they were touching.

    We both have unique perspectives and some degree of correctness. The problem with the current system is we're forced to average our perspectives. If the blind men had averaged their perspectives they would have never figured out that what they were touching was an elephant.

    In a pragmatarian system you would allocate your taxes according to what you perceived to be correct and I would allocate my taxes according to what I perceived to be correct. The result of adding all our perspectives together would be the ideal scope of government.

    In essence...what I'm advocating is tolerance.

    Just like my proposed system assimilates disparate bits of truth...I also assimilate bits of truth from each person I talk with. So even if I have no chance of convincing you...I still value hearing about your values and your concerns about what other people value.

    Thanks for sharing that link! Trying to promote political tolerance is ridiculously hard so I definitely appreciate the suggestion for additional venues.

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  37. If I understand, Prof. Hanson in this post (http://www.overcomingbias.com/2011/11/office-by-combo-auction.html) is describing a process by which a bunch of individuals arrive at a conclusion. The logic seems somewhat parallel to your proposals.

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  38. Thanks for the link! I left a comment but it's awaiting moderation.

    The objective is to reveal somebody's true values. How much salary would somebody be willing to forgo in order to attain their preferred office space?

    When it comes to the efficient allocation of scarce resources...votes do not sufficiently reveal how much somebody truly values what they are voting for. Hence... the common expression "put your money where your mouth is".

    Here's my latest post on the topic...other people's values.

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  39. Somebody just shared this article with me...Your Money, Your Choice. The article talks about almost exactly what I've been describing. Well...except the author describes it much better and offers empirical evidence.

    What's fascinating though and completely surprising is that the article was written by a "progressive"! That doesn't necessarily validate the value of the idea...but it does lend some credence to pragmatarianism offering a viable compromise.

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