Government as charity

The US has an interesting system of tax deductions for donations to charity. You give $100 to a registered charity, and those hundred dollars don’t count as taxable income. This allows people to some extent to vote with their wallets. I think, though, that it doesn’t go far enough. Suppose that the Departments of Defense, Energy, whoever is responsible for Medicare and Social Security, and perhaps Transportation were set up as charities, with donations 100% deductible from the taxes? That is, give 100 dollars to the DoD, and you pay 100 dollars less in taxes, not just deducted from your taxable income. Here is real voting with your wallet! Don’t like your tax money going to the war in Iraq? Give generously to the DoE and fund energy research instead! Dislike all those dang hippies and welfare moms living off your hard-earned money? Fund some good body armour for our boys in Iraq instead.

The actual tax system doesn’t have to change an iota; you’ll still pay every penny you owed the government before. It’s at least possible that people wouldn’t look so hard for loopholes if they had some say in where the money was going, but there is no need for that to happen for this to be an improvement.

The question is, though, what happens to the regular tax money that goes over the budget? If the President thinks the DoD needs 100 trillion, and the taxpayers give them 2 million, he presumably makes up the deficit with the tax money from those people who couldn’t be bothered to figure out which department they wanted to support. So actual voter control over the budget is probably not going to happen. Still, the effects of good signals are not to be underestimated! A government might have a hard time explaining that 99 trillion, 999 billion, 998 million compared to 2 million from the direct payers. Especially if, perchance, all those 2 million came from Halliburton stockholders. This kind of ability to signal what you want is valuable in a democracy quite apart from whether you have a genuine power of the purse. Indeed, there is probably a Constitutional difficulty in giving the voters direct control of the budget, since that’s reserved for Congress in the Constitution; the argument that Congress has only to fill in the holes it thinks the taxpayers left could be a useful one in a court.

Ah well, never happen. What political party would see its interests served by more direct democracy? On the other hand, the federal level is not the only place we are taxed. City budgets, anyone? Small counties can sometimes be couped – quite legally – by small groups with a strong message, if they have the advantage of surprise and enthusiasm. If this system could be adopted in a local government, anywhere, and shown to work well – who knows? Maybe the state in question might take notice.

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