Government as a charity banker-Can voluntary contributions replace taxes?

In light of the worldwide problem of excess government spending and budget deficits an idea came to me, one I am surprised is not discussed more often:

Will there be, in the future, a system where the government collects revenues not by forced taxes but by voluntary contributions?

The way it can work is the government can act somewhat like an investment banker. Each part of government spending that is believed to be needed can be pitched to the public and companies and households can decide how much of their income to give to each cause.

For instance, the reasons why defence finance is needed this year and how much needs to be raised.

Let’s see the reasons how this system could work-and for the better

Money for a Cause

The money goes exactly where the people who are giving it want it to go. People will feel they are giving their money for a cause and purpose, rather than having little to no say individually.

People, not feeling obliged to pay, feel good when they do, like for charity or tips at a restaurant. When they are forced there is greater reluctance.

It could instead be government in need. They could have one of those ‘we have raised so far’ computerised blips outside Westminster. Can we make our target? Come on people! Get donating! More fun, right?

To ensure people will donate 

Companies can be made to include what causes and how much they have given in their annual reports. With households this would be more difficult but the idea is to name and shame those who have not given and reward those who do.

If the public thinks it’s a disgrace that, for example, healthcare is inadequately funded, they can do it themselves, and buy only from companies who do so.

To ensure the government are estimating costs correctly and efficient

About how much it will cost to fund a part of their spending and it’s effects, independent thinktanks can have regular contact with the public about their investigations to their policies.

E.g. Does it cost as much as they’re saying? Are the costs and benefits of an infrastructure project correct as to people are reading?

Such pressures and the need for government to pitch their projects just as a company would pitch for investment puts a private sector efficiency in the ways they are using the money.

When not enough money is raised

An urgent plea can be made, saying that, for instance, we will not be able to fund policing in your local area if you do not donate.

In a recession: If they cannot get enough donations due to a recession due to automatic stabilisers they can, like a company, issue equity in nationalised businesses or project finance or debt. This will make government collections part of a person’s savings instead of an outflow.

Countering a ‘Plutocracy’ A.K.A. Government run by the rich

One issue which springs mind is that if government spending policy is decided by how much donation is given towards it, the wealthy will have a disproportionate say due to their financial clout.

You could argue though that as many of the extremely wealthy are known for their philanthropy, money going to the ‘right’ areas shouldn’t be a problem.

Also, the wealthy find ingenious ways to avoid paying taxes when a tax system is in place anyway. We should be better off if those do start paying to this system, even if that now houses a lot of power in their corner.

Greater economic activity

Taxes discourage economic activity. The issues of ‘brain drains’ to Switzerland^^, tax avoidance, Bermuda based companies etc can be avoided and activity bolstered by this system….

In conclusion:

We know politicians are good at pitching, so they should have no problems selling government spending ideas to the public. They will perform more like a private charity, pressured by think tanks, lobbiers  and possibly a financial watchdog just as companies are when they are pitching for investment…

An issue is just getting the average Joe to be able to be bothered in analysing the costs and benefits of each funding area or a source of news which can accurately translate likely complicated pitching documents to the layperson, missing nothing meaningful but hidden….

Administration could be costly too, especially if it gets very specific e.g. for your local area. The free rider problem will be be a big issue to overcome also.

We could see a system like this brought into play, it has definite advantages, but also disadvantages that cannot be ignored.

 

Interesting reading, even though it disagrees: See bottom of http://mises.org/daily/2510

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2 Responses to Government as a charity banker-Can voluntary contributions replace taxes?

  1. Neil Borate says:

    What about Public Goods, Josh?

  2. Erin says:

    I’ve been thinking about this a lot. My son started school today (kindergarten) and already there are about 10 fundraising drives to support before the end of September. Was it like this 20 years ago? Or do elementary schools get less of the government dime because they’ve started raising their own ‘dime’ from those willing to give as long as there’s a benefit for them? Then, during the summer, police called me at home asking for money for some sort of anti drug program in the schools. Hello! Shouldn’t that be funded by the gov’t too? What’s up? Does all this fundraising mean the goverment can divert funding away from schools to… jails???

    Yes, I think your question above is really interesting. I can’t say I agree. I think good government is about having the populace (read corporations too) fund all sectors of society without bias. But maybe it doesn’t work like that anyway. So I guess your post is one other option. If we can’t come up with an unbiased taxation system (I know, only in a perfect world), maybe we should scrap it and let people fund what they want. Power to the people and let the chips fall where they may. Maybe schools would survive in an aging demographic.

    erin

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