-------------------------------------------------------------------------- From: hanson@hss.caltech.edu (Robin Hanson) To: altinst@cco.caltech.edu Date: Fri, 14 Jan 94 15:20:54 PST Subject: Let Federal Taxes Vary by Congressional District [Here is an example of a reasonable altinst post. It is on a political subject, but does not engage political debate.] Anton Sherwood's proposal for balancing the budget seems worth a closer look. But I'd like to describe a simpler way to deal with the same problem. [First I described the problem to solve. Once a post declares the problem it wants to solve, it is out of bounds to reply that this is a dumb problem to solve.] Congressfolk seeking re-election seek, among other things, concrete benefits they can bring to their district, which they can claim clear credit for. Thus they focus on getting dams, grants, etc. directed to their district, and seek tarriffs or subsidies for industries especially concentrated in their district. They tend to give only lip-service for issues, like say health-care reform, which might benefit everyone in the nation, and which lots of congressfolk would be involved in developing -- the benefits and the credit to be claimed are both diffuse and unconcentrated. And when credit is diffuse, each contributor has incentives to slack off and let the others do all the work. So a standard argument why congress overspends, or spends more than it gets, is that each congress-person seeks concentrated benefits that cost taxes, while the general tax rate is a diffuse benefit. It's hard to win re-election by claiming to have lowered taxes for all Americans, with the help of several hundred other congress-folks. [Here I have given a short analysis of the problem to be solved, just to lead into and motivate the solution. But the solution is the main thing.] So my simple proposal is to allow federal tax rates to vary by congressional district. Given this, taxes would suddenly become a concentrated benefit. Incumbents could brag about how much lower taxes were in their district, and challengers could complain how high they were. Incumbents would have clear incentives to trade votes to get taxes lowered in their district, and the credit would be clear - who else would want to push for lower taxes in that district? [Here I have proposed one institutional solution to the problem. Just one main solution per post, not a laundry list of possible solution directions folks might consider. Further posts with the same subject line should respond to this proposal. Other proposals to solve this or other problems should use other subject lines.] Robin Hanson hanson@hss.caltech.edu 818-683-9153 2433 Oswego St., Pasadena, CA 91107 FAX: 818-405-9841 818-395-4093 Div. Hum. & Soc. Sci. 228-77 Caltech, Pasadena, CA 91125 -------------------------------------------------------------------------- From: bobf502@aol.com To: altinst@cco.caltech.edu Date: Sat, 15 Jan 94 12:17:01 EST Subject: re: Let Federal Taxes Vary... While I generally applaud the idea of providing an incentive for politicians to reduce government, I feel this proposal would encourage them to reduce federal revenue below the point where it could perform the functions for which it is suited, i.e. national defense, infrastructure, etc. While the current system lets them ignore the cost of the programs, I think the proposed system would allow them to horde their money within their state without regard to the things the country as a whole needs. Bob Fite, Houston, TX BobF502@aol.com 71220.2742@compuserve.com -------------------------------------------------------------------------- From: tburns@mason1.gmu.edu (T. David Burns) To: AltInst@cco.caltech.edu Date: Sat, 15 Jan 1994 22:58:27 -0500 Subject: Re: Let Federal Taxes Vary by Congressional District robin wrote: >my simple proposal is to allow federal tax rates to vary by >congressional district. Given this, taxes would suddenly become a >concentrated benefit. How Wicksellian! Unfortunately, debt and money creation are still diffuse. If you could also vary the amount of debt by district that would go a step closer. We would need to limit constitutionally the fedgovt's ability to issue debt, allowing the various districts to decide whether to pay taxes with cash or by borrowing. Would that put a 'better' limit on how much could be borrowed, since each district's credit rating is different from the feds'? How shall we plug the money loophole? Bob Fite wrote: >I think the proposed system would allow them to horde >their money within their state without regard to the things the country >as a whole needs. I don't see anything in Robin's proposal that would allow hording. Allocation would remain as it is. But this points to a cute economist-type question which amounts to something very similar: what if some districts simply pay no taxes? Dave tburns@mason1.gmu.edu (T. David Burns) -------------------------------------------------------------------------- From: davidbloom@aol.com To: altinst@cco.caltech.edu Date: Mon, 17 Jan 94 02:30:55 EST Subject: Re: Let Federal Taxes Vary by Congressional District While the idea of letting taxes vary by district is provocative, maybe the more interesting extension is to tie the tax rate to the amount of federal benefits directly received by each district. Thus, districts that receive a lot of pork would be charged with paying for it as well, relatively speaking. That might reduce, even discourage the normal and politically understandable drive to bring more goodies to the home folks. -------------------------------------------------------------------------- From: KMOSTA01@ULKYVX.LOUISVILLE.EDU To: altinst@cco.caltech.edu Date: Tue, 18 Jan 1994 11:33:14 -0500 (EST) Subject: Let Federal Taxes Vary by Congressional District The function of taxation is different in different people's minds. Let me give some possible purposes of taxation: - Get as much money as possible for the government (optimal solution here is a straight payroll tax on labor, such as Medicare tax is now (Social Security only on first $60,000 of income), and no other taxes whatsoever. - Collect sufficient amount with as little interference in social affairs as possible (optimal solution again as above). - Equalize incomes with no regard for social and economic effects of the tax strategy (I do not know of any research into this area, but I think that communism is the optimal solution here) - Balance equalizing incomes with not killing the economy too quickly (this seems to be the current U.S. approach, an impossible dream, in my opinion). Robin's idea is interesting, but the point I am trying to make is that one's purpose needs to be specified. Why should taxes vary by district? What do we want to achieve this way? In relation to this I would like to bring to yall's attention two important points - The tax which maximizes after tax income to labor is the straight payroll tax on labor only (no tax on capital or businesses, any such taxes cost labor its income, dearly I should say) - If marginal combined income tax rate exceeds 50%, it is far more profitable to hide the last dollar of income than to make an extra buck. Add Social Security/medicare, federal, state and local marginal rates and ... weep? Krzys' --------------------------------------------------------------------------