In public choice theory, tax choice (sometimes called taxpayer sovereignty or earmarking) is the belief that individual taxpayers should have direct control over how their taxes are spent. 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.
Contents
Opinions
Daniel J. Brown examines tax-target plans in educational programs.
Alan 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
Voting with your feet and voting with your taxes are two methods that 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.
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. – Wallace E. Oates, On the Theory and Practice of Fiscal DecentralizationLegislative 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.