Individualized Tax Allocation

Libertarians like to say “Taxation is Theft.”  It’s fun. It’s something we can all sit around and gripe about together. It fits nicely on a T-shirt, coffee mug, or meme template. 

But when talking with friends who might not be all-in on the libertarian thought train, it’s never really worked as a great talking point.  Taxation is a part of our lives, and has been throughout history, just like Government.  One really cannot exist without the other.  If we agree that there are some essential functions of government (and I think there are) then those functions will need to be paid for.  The questions are always: how do we decide how to collect those taxes, how much do we collect, and how do we decide what to do with them?

Right now we have a tax on seemingly everything:  what you earn, what you invest, what you spend on goods and services, what you “own” in certain properties, and what you leave behind.   Right now government usually collects more than it needs to feed the Essential Functions.  Why? Because of question 3. Right now we’ve decided that individuals are fallible and cannot be trusted to handle their own money, so we elect other individuals who then take a portion of our money then debate amongst themselves on how it is to be spent.  The voter (but not necessarily the taxpayer) may have their interests represented in the legislature, unless of course you’re in the 49.9% (or more) who voted for somebody else.  Even if your candidate wins, there’s no guarantee that they will vote to spend your money the way you want. Maybe you voted for that person simply because they were a Lesser Evil. Maybe they have different priorities than you. Maybe they will get something out of the expenditure that doesn’t necessarily benefit you.  Then there’s the problem of taxation without representation: your tax burden may or may not correlate with your voting power.

So, join me for a moment in Colin’s Fantasy Dream World:

As far as I know, this is an original idea.  Which means it’s either really great or really terrible. I’ve discussed it a few times at our local LP meetings and on Twitter/Facebook, and tweaked it a bit. It’s a work in progress, it’s certainly not perfect or foolproof, and I reserve the right to adjust as critique arises.  So, please offer your thoughts but please also be kind and fair 😊.

Individualized Tax Allocation (ITA) is the idea that taxes can still be collected by whatever scheme a particular government has decided on, but then the taxpayer has some direct say in how some of that money gets allocated.  Here’s how I envision it:

• Government issues a Tax Payer Identification Number (henceforth TPID). 

  • “Government” could be federal, state, or local.

  • Your TPID can be for an individual or for a business or other entity.

    • This is necessary and fair because:

      • Some who want to do business may not have or want to use a TPID (for instance if you want to go to the liquor store but want to pay cash).

      • Businesses pay taxes too (unless we change that) and therefore suffer from the No Taxation Without Representation problem.

  • You do not have to be a citizen of anywhere to get a TPID.

  • TPID can be a number, a barcode, a QR code, etc. that you can easily carry and keep track of.

•  Taxes are collected and assigned to your TPID.

  • “Taxes” can be income, sales, property, etc. 

    • In Colin’s Fantasy Dream World, this is a completely sales tax-based system,

    • And all other taxes go away.

  • The tax collection agency or revenue service (hereafter ITA Service) will set up a website which will keep track of how much tax is collected per TPID.

  • This is the real technical issue: those who collect the tax will need a way to connect it to the TPID.  In an income tax-based or property tax-based system the paper trail would be easier to establish.  In a sales tax system tax would need to be collected and assigned at point of sale, which would be more difficult, but not insurmountable.

  • Any taxes collected without a TPID will be automatically allocated to the General Fund.

• The TPID holder can log in to the ITA Service website, which will:

  • Show how much tax has been collected for this TPID.

    • Show the current budgetary needs (in percent) for each item in the budget.

      • Items in the budget should be as narrow as the ITA Service can accommodate.

      • But they can be divided and subdivided into categories.

    • Allow the TPID holder to allocate their taxes (percentage-wise) to items in the budget.

      • Allocations can be changed by the TPID holder every (30, 60, 90?) days. This is necessary and fair because:

        • Taxpayers will need to be able to adjust their allocations as their preferences and the political climate change.

        • Government will need to have some stability in the budget.  I expect this will not be too much of a problem. I anticipate that most TPID holders will “set and forget” their allocations. After all, when was the last time you changed your cable provider or car insurance?

      • This allows taxpayers to vote with their tax dollars, in addition to at the ballot box.

      • It will be up to the Government and its supporters (and detractors) to convince taxpayers to allocate (or not) their taxes to whichever budget items need funding (or defunding). 

      • However it may be worthwhile to consider fixing a certain percentage as allocated to the General Fund, at least initially.

        • Perhaps 50% automatically allocated to General Fund at rollout?

        • This allows legislators and administrators to still have some influence on expenditures, as emergencies come up, etc. while

        • Providing some stability in the budget, and also

        • Giving feedback and helping to predict future allocations, because

        • The amount of taxes allocated automatically in the General Fund should gradually be tapered down, eventually allowing TPID holders to allocate almost all (let’s say 90%) of their taxes.

• Benefits and Risks, Advantages and Disadvantages:

  • The biggest drawback is that this will be quite an upheaval in how we collect and allocate tax money.  ITA will involve infrastructure changes and education, and there will be hiccups and missteps. But “that’s how it’s always been done” is neither true nor is it a good excuse to keep going the same way forever.

  • TPID holders do not have to be citizens, therefore (partially) solving the No Taxation Without Representation issue.  I see this as a major win.  I would be suspicious of anyone who didn’t.

  • TPID holders will have influence on the budget based on their tax burden.  Again I see this as a major win.  One Person : One Vote is empowering, but One Person : One Vote : One Thousand Tax Liabilities doesn’t seem quite fair.  Everyone who is eligible to vote will continue to have influence on legislators and administrators who set the budget.  But everyone who pays taxes will have a proportional say in how they are spent.

  • On the other hand, since TPID holders can be businesses or other taxpaying entities, there is the potential that large corporations could have an outsized influence on expenditures.  Of course, this is already a problem with the lobbyist industry, where businesses, PACs, etc. get access to elected officials and influence legislation (mostly via tax policy) to their own benefit.

  • Therefore,

    • I would recommend that PUBLICLY TRADED companies make their ITA allocations public.  The Free Market can then exert its influence over these companies and bring them back in line if needed.

    • PRIVATE citizens, businesses, or other entities (no matter how much tax they pay) will get to vote with their dollars privately just like we have secret ballots now.

    • Tax incentives (i.e. tax reductions) as a Government policy to encourage certain behaviors and businesses must be abolished.

  • However, since we’re not doing tax incentives (i.e. tax reductions) anymore here in Colin’s Fantasy Dream World, legislators and administrators will need to add and subtract items in their budgets in order to try to influence behavior, and then try to convince tax payers to allocate their money to those items.

  • This means the tax money available for budgetary items will change with time.  In times of particular stress, it will need to change quickly.  I think it may be a good idea to allow ITA Service to open up allocation changes in times of emergency such as war, natural disaster, or pandemic. That’s why we will still elect individuals who will still need to debate how to deal with the changes as they come up, and why One Person : One Vote will remain valuable.

• Frequent Question and Comments:

  • “I thought you were a FairTax supporter?”

    • I am.  If someone ran on installing the FairTax (which includes abolishing all other taxes) I would support and vote for them in a heartbeat.  I think it’s much better than what we have now and the legislation is already written. 

    • However, while ITA can be based on a sales tax, it doesn’t have to be. 

    • The FairTax includes a monthly tax rebate, which works like a version of Universal Basic Income.  While I think this is potentially a good idea, I think it would be better if taxpayers had an opportunity to support or reject it according to their preference.  UBI could be added as a budgetary item, and supported (or not) under the ITA plan.

    • FairTax does not solve the No Taxation Without Representation problem.

  • “Why not just a Flat Tax?”

    • A Flat Tax is still necessarily based on income, and does not offer as much flexibility or “fairness” as FairTax.

    • Flat Tax would also require that all tax breaks, incentives, reductions, refunds, credits, etc. go away in order to be feasible.

    • Flat Tax places more burden on lower income taxpayers and less functional burden on higher income taxpayers.  I know that sounds “woke” or whatever but you have to acknowledge that someone who makes $31,200 per year (full time at $15/hour) will suffer more by having 10% skimmed off the top than someone who makes $100,000 pre-tax. 

    • Flat Tax does not solve the No Taxation Without Representation problem.

  • “So this is just a version of SPLOST?”

    • Special Purpose Local Option Sales Tax is the one tax I have the least issues with.  A SPLOST is prepared by locally elected officials, for a specific purpose or purposes, has public input, is voted up or down by referenda, is a small (usually 1%) tax on sales, AND IT EXPIRES.  A SPLOST almost always passes. A SPLOST is usually successful in raising the revenue projected.

    • My biggest issue with SPLOST is that we usually have to vote yes or no on the entire package, rather than the individual projects, although there is public input before the whole thing goes up for a vote.  I’d rather we had the option to vote on each project, but I understand there may not be sufficient public interest to warrant the potential ballot fatigue.

    • The other big issue with SPLOST is that it is usually just another tax IN ADDITION TO all the other taxes you’re already paying.  If SPLOST could be a replacement for another local tax such as property tax (the worst tax), I think it would be a winner all day long.

  • “No politician would ever support this!”

    • The fact that you feel this way just reinforces how unfair and corrupt our current system is.

    • I think there’s still opportunity for politicians to have influence under the ITA.  They will still get to set the budget, add or subtract items, and decide what the recommended allocations are.  They will still be able to argue over how to spend the General Fund. They will still be able to open up allocations in times of emergency. They will still have to convince taxpayers which budgetary items are worthy of support (or not). Political parties could even broadcast to their supporters and members how they recommend taxes be allocated.  For that matter, so could your place of worship, your employer, your friends, your family.  But ultimately it would be up to the taxpayer.

    • That being said, I anticipate that many taxpayers will either pay taxes without a TPID (goes to General Fund) or not visit the ITA website (unallocated taxes will default to the General Fund). Furthermore, any really popular budgetary item that gets more than it needs will have its overages default to the General Fund. It would, of course, be in the politicians’ best interest to increase the budget for such an item 😊.

  • “What if (whatever I think is important) doesn’t get enough funding?”

    • Then it becomes up to the legislators and administrators to decide whether that item gets defunded or if they want to spend General Fund money to fund it.

    • If it is a worthwhile budgetary item in the first place, the politicians ought to be able to sell it to the taxpayers and convince them to fund it. 

    • To quote Penn Jillette: “People need to be fed, medicated, educated, clothed, and sheltered. If we’re compassionate, we’ll help them, but you get no moral credit for forcing other people to do what you think is right.  There is great joy in helping people, but no joy in doing it at gunpoint.”

  • “What in the world does all this have to do with your run for PSC?”

    • Not much, although it has come up a time or two while talking about other political things.  In particular the current Secretary of State is pushing legislation about preventing non-citizens from voting. Of course, they will still pay taxes, and therefore suffer the No Taxation Without Representation problem.  As above, I feel that ITA at least partially fixes this problem.

    • However, please consider:  the biggest job of the PSC is to “regulate” Georgia Power.  Electricity users in Georgia do not have a choice of provider, unless they want to move.  They must engage with whichever provider holds that particular geographic location.  For many, that’s Georgia Power. Its ratepayers do not have any influence on how much they pay, nor do they have the option to opt out of paying for additional expenses, such as coal ash remediation or building a Very Large Project.  Costs of business get passed along to the ratepayers (according to the rulings of the PSC), but any profits go back to investors. Is there any incentive to keep prices under control? Is there any incentive to invest in and develop cheaper sources of energy?

    • Electric Membership Cooperatives have been around since the 1930s and work like my ITA plan, with some plusses and minuses.

      • Although EMCs enjoy their geographic monopolies as well (both in terms of guaranteed customers and limited competition), they serve their members directly, rather than investors (and therefore are not regulated as much by the PSC). The goal of an EMC is to provide the best service at the lowest cost, and its members get to vote on leadership as well as to volunteer some of their money toward particular projects in order to help the cooperative as a whole. 

      • An EMC beats my ITA plan by returning any extra revenue to its members.  It’s designed to be non-profit. If we ever got an ITA plan up and running, and there was extra revenue, we’d have to decide whether to return that extra money, save it for a rainy day, or decrease tax rates for following years. 

      • Which means under the ITA plan there’s really no incentive, other than voter pressure, to keep spending and costs low.  However, I suspect once taxpayers have more say in how their taxes are allocated and spent, and start talking about their allocations around the water cooler, that voter engagement will increase. 

So that’s it. That’s my answer to the Question of Life, the Universe, and Everything. As you can see, it wasn’t really that original of a thought, just a different application of an old idea.  And of course I fully acknowledge that it’s not perfect. But I think it’s a pretty darn good step up from what we have now and it’s feasible, scalable, and adjustable.  As long as we have to have Government and Taxes, I think Individualized Tax Allocation solves more problems than it creates, and offers opportunities for growth and adaptation that the old systems of voting and taxation lack. 

Thank you for your time!