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In public choice theory, tax choice (sometimes called taxpayer sovereignty, earmarking, participatory taxation or fiscal subsidiarity) is an emerging type of citizen sourcing in which individuals or groups of taxpayers decide how to allocate part of their taxes of a municipal or public budget appropriation through a process of democratic deliberation and decision-making. Its proponents apply the theory of consumer choice to public finance. They claim taxpayers react positively when they are allowed to allocate portions of their taxes to specific spending.

Existing examples of tax choice includes: Business improvement district and Tax increment financing.

Tax relationship between the state and taxpayers

The term tax sovereignty emphasizes the perceived equal status of state and taxpayer, instead of the traditional view of the dominant position of the state in taxation. Tracing back to the legitimacy of the state, Viktoria Raritska points out that “the legitimacy of the state as a formal institution is substantiated by the people’s refusal of their freedoms and an agreement to submit to government in exchange for the protection of their guaranteed rights”. Proponents of tax sovereignty believe that in a traditional system of taxation, the taxpayer gives up their natural liberty in exchange for the protection from the state and the provision of public services; which impels the state to take public interests as its obligation to maintain social order and citizen safety.

This mutual relationship makes taxation a link between the state and taxpayers. Proponents of tax sovereignty believe that in such a relationship, the taxpayer endows power to the state to ensure the satisfaction of the public interest. Furthermore, they propose that the taxpayer has granted the state tax sovereignty. “It is due to the fact that the taxpayer endows the state with tax sovereignty. Thus, state has not only the rights on taxation, but also the obligations, which correspond to the taxpayer's rights”. Therefore, the existence of the state's perceived tax sovereignty is attributed to the taxpayer.

The Swedish economist Knut Wicksell’s theory also argues that "taxation should be based on the principle of value and counter-value, as if taxation was a voluntary transaction between the individual and the state".

Opinions

Daniel J. Brown examines tax-target plans in educational programs.

Alan T. Peacock, in his 1961 book The Welfare Society, advocates greater diversity in public services (education, housing, hospitals).

Optimal quantities of public goods

According to Vincent and Elinor Ostrom, it is possible that government may oversupply, and a market arrangement may undersupply, those public goods for which exclusion is not feasible.

Foot voting versus tax choice

Foot voting and voting with one's taxes are two methods that have been proposed to allow taxpayers to reveal their preferences for public policies. Foot voting refers to where people move to areas that offer a more attractive bundle of public policies. In theory foot voting would force local governments to compete for taxpayers. Tax choice, on the other hand, would allow taxpayers to indicate their preferences with their individual taxes. Wallace E. Oates wrote: "In the Tiebout model, for example, there is costless mobility; individuals seek out a jurisdiction that provides exactly the level of output of the public good that they wish to consume. In so doing, they reveal their preferences for 'local' public outputs and generate a Pareto-efficient outcome in the public sector."

Legislative measures

Four bills involving tax choice have been introduced by the United States Congress since 1971. The Presidential Election Campaign Fund, enacted in 1971, allows taxpayers to allocate $3 of their taxes to presidential election campaigns. The 2000 Taxpayers’ Choice Debt Reduction Act would have allowed taxpayers to designate money toward reduction of the national debt. The 2007 Opt Out of Iraq War Act would have allowed taxpayers to designate money toward certain social programs. The 2011 Put Your Money Where Your Mouth Is Act would have allowed taxpayers to make voluntary contributions (not tax payments) to the government. These later bills died in committee.

In popular culture

When asked what her first executive order as president of the United States would be, Ellen DeGeneres advocated a mix of voluntary taxation and tax choice, stating "you should get to choose where your money goes instead of giving it and just letting them decide, I think you should decide."

In 2009, during the Great Recession, Pope Benedict XVI advocated for a form of tax choice in his third encyclical. He wrote: "One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State. Provided it does not degenerate into the promotion of special interests, this can help to stimulate forms of welfare solidarity from below, with obvious benefits in the area of solidarity for development as well."

In 1983, a short story We, The People by science-fiction writer Jack C. Haldeman II. The plot of the short story involves a man offered the choice to participate in allocating his taxes with the assistance of Artificial intelligence.

"We, the People," written in a flush of bitter anger, but with an undertone of hope -- has over the years gathered me more response than anything else I've ever written. I was told that someone once sent copies to all the members of the Senate when they were considering tax reform. It has been used in classrooms to teach the critical difference between a Democracy and a Republic. I wrote it years ago, but I feel it is as pertinent today as it was when it appeared in Analog magazine. - Jack C. Haldeman II, Political Science Fiction

The short science fiction story by Jack C. Haldeman II, We, The People was originally published in September 1983 in ANALOG.

Examples

Iceland

Taxpayers in Iceland who belong to an officially registered religious group or secular humanist organization must pay a congregation tax (Icelandic: sóknargjald, plural sóknargjöld) which is deducted from income taxes and goes to the individual's respective organization. In the past, the sóknargjald of those who do not belong to any recognized religious organization went to the University of Iceland, but this was changed in 2009. In cases of individuals not belonging to a registered religious group or secular humanist organization, the amount that would otherwise be used for the sóknargjald remains now part of the income tax budget. In 2015, the monthly sóknargjald amounted to 824 Icelandic krónur, about $US6.

Italy

Italian taxpayers devolve a compulsory 8 ‰ = 0.8% (eight per mil, i.e. eight per thousand) from their annual income tax return to an organised religion recognised by Italy or, alternatively, to a state-run social assistance scheme.

Spain

The Spanish tax declaration form has one checkbox for the Catholic Church, none for other religious groups and a second checkbox for activities of social interest. These checkboxes don't influence the total tax amount, but, for each ticked checkbox, 0.7% of the total amount are used as indicated.

Japan

In Japan, city residents can choose to allocate a portion of their taxes to their hometowns...aka hometown tax. In 2021 more than 7 million taxpayers choose to do so resulting in a total allocation of $6 billion (source).

See also

• Choice architecture
• Hometown tax
• Hypothecated tax
• Microeconomic reform
• New public management
• Participatory budgeting
• Religious Freedom Peace Tax Fund Act
• Tax reform
• Voluntary taxation
• YouCut
• Motivation, Agency, and Public Policy
• Nudge
• The Other Invisible Hand

References

1. ^ Brown, Daniel J. (Fall 1979). "The Case for Tax-Target Plans". Journal of Education Finance. 5 (2). University of Illinois Press: 215–224. JSTOR 40703229. For educators, these "new" values reflect a demand for taxpayer sovereignty, greater choice among educational programs, and more responsiveness on the part of educational systems.
2. Buchanan 1963.
3. Lamberton, Cait (4 March 2011). "Your Money, Your Choice". Democracy: A Journal of Ideas.
4. Sherry Xin Li; Catherine Eckel; Philip J. Grossman; Tara Larson Brown (2011). "Do Earmarks Increase Giving to Government?". S2CID 168228863. {{cite journal}}: Cite journal requires |journal= (help)
5. Alm, James; Jackson, Betty R.; McKee, Michael (1993). "Fiscal exchange, collective decision institutions, and tax compliance". Journal of Economic Behavior & Organization. 22 (3): 285–303. doi:10.1016/0167-2681(93)90003-8.
6. ^ System of Financial Law : system of tax law : conference proceedings. Masarykova univerzita. Katedra finančního práva a národního hospodářství. (1st ed.). Brno. 2015. ISBN 978-80-210-7827-7. OCLC 920663188.{{cite book}}: CS1 maint: location missing publisher (link) CS1 maint: others (link)
7. Johnsen, Garmann (December 1994). "The impact of the Scandinavian controversy about just taxation on public choice; a late homage to Einar Einarson". Public Choice. 81 (3–4): 323–338. doi:10.1007/bf01053236. ISSN 0048-5829. S2CID 154569863.
8. Kennett, Patricia (2008). Governance, globalization and public policy. Edward Elgar Publishing. p. 56. ISBN 978-1845424367
9. Vincent Ostrom; Elinor Ostrom (2003). "Public Goods and Public Choices" (PDF). Archived from the original (PDF) on 20 May 2005.
10. Oates, Wallace E. (May 2006), On the Theory and Practice of Fiscal Decentralization (PDF), Lexington, KY: Institute for Federalism and Intergovernmental Relations, archived from the original (PDF) on 1 December 2008
11. Taxpayers’ Choice Debt Reduction Act
12. Opt Out of Iraq War Act of 2007
13. Put Your Money Where Your Mouth Is Act
14. Kasperowicz, Pete, "Rep. Campbell proposes tax form change to encourage donations to the government". The Hill", 18 April 2011.
15. Ellen DeGeneres, Mario Lopez (4 May 2016). What Ellen DeGeneres Would Do If She Were President. Extra. Archived from the original on 7 May 2016.
16. Benedict XVI (7 July 2009). "Caritas in Veritate 'Charity in Truth'". Vatican Publishing House. Archived from the original on 2 September 2011. Retrieved 7 July 2009.
17. ^ Bureau of Democracy, Human Rights and Labor (2014). "International Religious Freedom Report for 2014: Iceland". U.S. Department of State. Retrieved 2015-12-07.
18. ^ "Kirkjumál og skráð trúfélög og lífsskoðunarfélög" (in Icelandic). Ministry of the Interior (Innanríkisráðuneytið). Archived from the original on 2016-03-23. Retrieved 2015-12-07.
19. Bureau of Democracy, Human Rights and Labor (2004). "International Religious Freedom Report for 2004: Iceland". U.S. Department of State. Retrieved 2015-12-07.
20. "Frumvarp til laga um ráðstafanir í ríkisfjármálum" (in Icelandic). Alþingi. 2009. Archived from the original on 2015-12-08. Retrieved 2015-12-07.
21. "Italian prime minister's office' explanation of the "otto per mille"".
22. "¿Qué hace Hacienda con tu dinero si no marcas la casilla solidaria ni la Iglesia en la declaración de la renta?". El Periódico (in Spanish). 2022-06-23. Retrieved 2022-07-31.

Further reading

• Baker, Russell – Taxpayers' Choice The New York Times. 1990
• Binowski, Brittany – Why Mandatory Taxes Are Bad – And How The Government Should Fix Them (But Probably Won't). Forbes. 18 June 2012
• Blinder, Alan S. – The Economics of Public Finance: Essays 1989
• Buchanan, James M. – Public Finance in Democratic Process: Fiscal Institutions and Individual Choice 1967
• Buchanan, James M. (1963). "The Economics of Earmarked Taxes". Journal of Political Economy. 71 (5): 457–469. doi:10.1086/258794. JSTOR 1829016. S2CID 153517472.
• Le Grand, Julian - The Other Invisible Hand: Delivering Public Services through Choice and Competition 2007

• Public choice theory
• Political science theories
• Theory of taxation
• Decentralization