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Inpublic choice theory,tax choice (sometimes calledtaxpayer sovereignty,[1]earmarking,participatory taxation orfiscal subsidiarity[2][failed verification]) is an emerging type ofcitizen sourcing in which individuals or groups of taxpayers decide how to allocate part of their taxes of amunicipal or publicbudgetappropriation through a process of democraticdeliberation and decision-making. Its proponents apply the theory ofconsumer choice topublic finance. They claim taxpayers react positively when they are allowed to allocate portions of their taxes to specific spending.[3][4][5]
Existing examples of tax choice includes:Business improvement district andTax increment financing.
The term tax sovereignty emphasizes the perceived equal status of state andtaxpayer, instead of the traditional view of the dominant position of the state intaxation. Tracing back to thelegitimacy 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”.[6] Proponents of tax sovereignty believe that in a traditional system of taxation, thetaxpayer gives up theirnatural liberty in exchange for the protection from the state and the provision ofpublic services; which impels the state to take public interests as its obligation to maintainsocial order andcitizen safety.
This mutual relationship makestaxation a link between the state andtaxpayers. Proponents of tax sovereignty believe that in such a relationship, the taxpayer endows power to the state to ensure the satisfaction of thepublic interest. Furthermore, they propose that thetaxpayer 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”.[6] Therefore, the existence of the state's perceived tax sovereignty is attributed to thetaxpayer.
The Swedish economistKnut 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".[7]
Daniel J. Brown[1] examines tax-target plans in educational programs.
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.[8][9]
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 attractivebundle 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 theTiebout 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 aPareto-efficient outcome in the public sector."[10]
Four bills involving tax choice have been introduced by the United States Congress since 1971. ThePresidential 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.[11] The 2007 Opt Out of Iraq War Act would have allowed taxpayers to designate money toward certain social programs.[12] The 2011 Put Your Money Where Your Mouth Is Act would have allowed taxpayers to make voluntary contributions (not tax payments) to the government.[13][14] These later bills died in committee.
When asked what her firstexecutive order aspresident of the United States would be,Ellen DeGeneres advocated a mix ofvoluntary 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."[15]
In 2009, during theGreat Recession,Pope Benedict XVI advocated for a form of tax choice in his thirdencyclical. 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."[16]
In 1983, a short storyWe, The People byscience-fiction writerJack C. Haldeman II. The plot of the short story involves a man offered the choice to participate in allocating his taxes with the assistance ofArtificial intelligence.
The short science fiction story by Jack C. Haldeman II,We, The People was originally published in September 1983 inANALOG.
Taxpayers in Iceland who belong to anofficially registered religious group or secular humanist organization[17] must pay a congregation tax (Icelandic:sóknargjald, pluralsóknargjöld)[18] which is deducted from income taxes and goes to the individual's respective organization.[17] In the past, thesóknargjald of those who do not belong to any recognized religious organization went to theUniversity of Iceland,[19] but this was changed in 2009.[20] In cases of individuals not belonging to a registered religious group or secular humanist organization, the amount that would otherwise be used for thesóknargjald remains now part of the income tax budget. In 2015, the monthlysóknargjald amounted to 824Icelandic krónur,[18] about $US6.
Italian taxpayers devolve a compulsory 8 ‰ = 0.8% (eightper mil, i.e.eight per thousand) from their annual incometax return to an organisedreligion recognised by Italy or, alternatively, to a state-runsocial assistance scheme.[21]
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.[22]
In Japan, city residents can choose to allocate a portion of their taxes to their hometowns...akahometown tax. In 2021 more than 7 million taxpayers choose to do so resulting in a total allocation of $6 billion (source).
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.
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