Sunday, November 16, 2014

On not tying revenue to expenditure

As longtime readers will know (all three of them) one of the things I worry about regarding government is complexity.  There are a lot of ways that government can be more complex than it has to be with various sorts of detriments to democracy's ability to control that government but one that annoys me out of proportion is taking some new tax or other revenue stream and saying that it has to be used for some particular purpose.

There was actually a ballot measure in Massachusetts that did this by dedicating the unclaimed deposits on cans and bottles to conservation; as well as increasing the variety of containers subject to deposits.

Why not just put any money that comes in into the same general fund and then take all expenses out of that fund?  Well, it seems that while voters generally think the money the government spends is wasted in general, they also think that for things the government spends money on it's doing a good job.  That means that taxes tied to specific spending increases will tend to be more popular than the alternative, and hence the temptation to tie new sources of income to specific purposes.

Now, if people are more adverse to taxes than they should be then having new taxes be encumbered might be a good thing if it gets them up to where they should be.  But I don't think I have clear enough evidence that taxes are too low to endorse this as a way of getting around the problem.  And even if the evidence was more clear then I don't see any reason why politicians couldn't just package tax increases with spending increases in the same bill without dedicating the revenue to that particular purpose.

And I should say that there are concrete harms caused by the ways we dedicate revenues to certain expenses beyond just concerns about how wieldy our government is.  There was a segment on Last Week Tonight recently on state lotteries.  Collecting money through a lottery might seem like a sort of taxation that falls disproportionately on people who are less well educated but they get more support than they deserve because the money is dedicated to education.

People are also sometimes fooled by revenue dedication into thinking that a given tax must fund all of the expenses of the cause it goes toward.  If I were to say that "The gas tax is used to pay for roads" then that's perfectly true, but it's hardly all the tax money that goes towards roads.  I know I've run into several people who've been against using general tax money for public transportation because they thought it was unfair that transit should get money from the general fund when (they thought) drivers paid for all their roads themselves.

How do we avoid having these dedications when they're so tempting?  Well, it would be fairly straightforward to pass some law preventing the practice in general.  If everybody recognized that these were bad in general but tempting in specific then the law would be a nice Schelling point keeping things in order.  There are a lot of things to dislike about California's Proposition 13 but one of the things it did was require "special taxes" dedicated to specific purposes to have 2/3 of the vote in order to pass.  So maybe that one provision is the way forward.

1 comment:

  1. I'd just worry that such a provision would make it too hard to get new taxes in general, since general taxes are unpopular. Proposition 13 continues to cause plenty of budget issues in California, as I understand it.

    On a separate note, I used to be anti-lottery but these days am not really. If I use a dollar to buy candy or a soda, that's probably got negative long-term expected value for me, but I'll enjoy it. If someone uses a dollar to by a scratch ticket, that may have a low expected value, but if they enjoy it as much as a candy bar it's a better deal for them. There are definitely major issues for a small percentage of lottery customers and you can legitimately argue with the details, but I think a lot of the common discourse about the lottery is problematic.

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