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A panelist at a conference I participated in last week offered up a quick thought on a reform that would serve to limit government power. The reform idea is based on the worry that majorities can simply vote themselves goodies at the expense of minorities in most democratic systems, even republican ones. We certainly see this today. Something like half of eligible taxpayers have no federal income tax liability (caution: do NOT demagogue this however, it is certainly true that these folks pay payroll taxes, excise taxes, property taxes and all kinds of other embedded taxes) – and so the thinking goes that they all have an incentive to vote themselves some goodies funded by actual taxpayers, since they will not end up paying for any of it themselves.

I’ll get to the reform idea in a second. But even this thinking is weak on its own merits. First, the same can be said of almost any person, whether they pay little, no or lots of income taxes. Since the benefits of any program are likely to be concentrated and the costs dispersed, then even for taxpaying citizens it might be the case that they have an even greater disconnect between benefits and costs. For example, someone that pays $100,000 in income taxes may still want to vote for a government goodie no less than a person paying $0. Why? What matters is the difference in value between the goodie and the expected increased tax burden for that goodie. So if the guy paying $100k in taxes already expects a goodie to be worth $200 to him, but his taxes will only go up by $2, then he acts on the expected increase in his individual (short-term) well-being of $198. For someone paying no taxes, even if a program is worth $150 to them, they would have a smaller incentive to vote for it than the taxpayer. So while I definitely respect the implication that there is a whole class of taxpayers with no federal tax liability, the idea that we need to hone in on is to make ALL voters feel some cost of getting goodies secured for themselves. And there are perhaps better ways to do this.

The reform mentioned was that anyone who receives an income transfer from the government (state or federal) ought to relinquish their right to vote in exchange for the handout. This is not of course a new idea. When a corporation files for bankruptcy protection, the managers of the corporation lose a great deal of autonomy about how to run the company (should it stay a company) or about how to distribute remaining assets should the company be liquidated. Our parents tell us all the time to “own up” to the things we do. In this case, the idea is that people may have less of an incentive to accept goodies if they lose the privilege of voting as a result – and that majorities will not emerge among the “welfare class” so to speak.

But there are problems with this proposal too! First, if you take economists seriously and understand that it is irrational to vote, and that the majority of Americans do not vote anyway, we may not be changing behavior all that much. But of course there is an even bigger problem, I suspect that politicians still want to get elected, and they want to get elected by giving out goodies to people. If this is viewed as a constraint, then I see the door being left wide open to less obvious ways of sending transfers to people – ways that legally are not transfers (and therefore preserve voting rights) and also ways that are harmful to the economy. For example, you might imagine in response to this that some government agency enforces hiring mandates for certain classes of people, additional pressure to raise the minimum wage, additional pressure to intervene in the market pricing mechanism, additional pressure to subsidize particular industries and sectors that seem to have lots of the targeted constituents.

We warn all the time in economics to worry about unintended consequences. There is no reason that in the effort to reform and improve government we are suddenly excused from having to worry about them in that setting.

2 Responses to “A Reform That Sounds Better than It Would Work”

  1. Michael says:

    One issue is that it would be too broad, since a lot of people have Social Security, Medicare, etc. Whether military and gov’t workers included another question, and if tax deductions count (which is important, too).

  2. chuck martel says:

    Using the supposedly democratic process of voting doesn’t legitimize the redistribution of private property for the purpose of enhancing some “common good”, since there is, in fact, no such thing. This topic has been explored to its most remote regions by some of the world’s most profound thinkers yet it seems as if we begin each day with no appreciation of what has gone on before. Men like Herbert Spencer, William Graham Sumner and Murray Rothbard, who spent lifetimes contemplating the relationship between the individual and the community, and were extremely influential in their own time, are forgotten or ignored today. Writers and entertainers go in and out of style as well. Despite the capability of recording the performances of talented entertainers like Doris Day and Betty Hutton their popularity has been replaced by others. Even though the novels of Sinclair Lewis and Dorothy Parker are found in every American library you don’t often see anyone reading one on the bus or hear discussion of them at a party. But that’s entertainment, not science or philosophy. While the ideas of Newton and discoveries of Galileo have been expanded and modified through time, they haven’t been discarded or ignored. We still accept calculus as legitimate. It’s amazing that the so-called educational system fails to explore alternative thinking. Or maybe it’s not.

    A crucial aspect of the pro-statist thinking is the establishment of the current experience as a baseline for any alternative view.For instance, when the subject of public roads comes up, “common goods” folk always ask, “Well, who would build and maintain the roads if there wasn’t a government? How would they be financed without taxes?” This, of course, assumes that any other scheme for the transportation of people and goods must produce the same configuration as exists today, that the streets, highways, rail systems, airports, etc. would appear and be used as they currently are. We have no way of knowing if this transportation system is the optimum possible with the resources we have in terms of individual satisfaction. This is also the case with other areas of economics, health care for example. What’s important is that individuals have the capability of using their own resources, or the voluntarily acquired resources of others, to investigate alternative solutions to problems. The idea that a majority of citizens has the ability, through the state, to determine the most effective use of private resources is preposterous.

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