Asymmetrical Information

There are two basic types of taxes: "user fees" or "dedicated taxes" that are designed to have those using a government service bare the burden of the service (As an example, entrance fees to a national park.) and "taxes" that go into the general revenue to cover things that "can't" (or shouldn't) be covered by user fees. In theory, a well designed tax system would use user fees to cover the costs of services only a small percentage of us enjoy. Those who use the roads, either by driving on them or consuming products transported on them, would pay for the roads. Services, such as the national defense, that benefit all of us, would be paid out of the general revenue. In theory, this would allow pricing (the tax) to set the "amount" of much of the services government provides.

Unfortunately, this is just a theory. In practice user fees aren't set the way the private market sets prices. The revenue generated from the user fee may be inadequate for the purpose (see the under funding of the park system) and yet government will insist on continuing the service or the money gets diverted for special projects only remotely related to the purpose of the tax (see the gas tax and how it gets diverted to build mass transit systems). Another potential problem is that the user fee raises too much revenue for the dedicated purpose. For example, Arizona dedicates much of its property tax revenue to education. One rural county has a large power plant that generates electricity for four states. The property tax from this one plant more than covers reasonable costs of educating the county's small population, but the county still finds a way to spend the money. How many high schools do you know of that have their own indoor football stadiums?

Despite these problems with dedicated taxes in practice, I like Jane's idea of insisting that social security tax revenues be spent on ONLY social security. Such a requirement would impose at least some small amount of discipline on the government.

In my ideal government, every governement service would have a dedicated tax or fee, and you could opt out. Don't think Social Security is a good deal? Opt out. Is your local public school a nightmare? Opt out. Scared sh*tless of socialized medicine? etc...

Only non-divisible services like national defense would be mandatory.

What's with the british spellings?

The British spellings (or Canadian, etc.) were sometimes being used by Our Jane even before she had a temporary posting to London. Now, of course, it's more prominent.

I am tired of hearing complaints that it's so shockingly Evil® to "pass[] such large burdens off to future generations of taxpayers." Fine. What's the solution? It's so blindingly obvious that only a professional pundit could miss it: make the people who are receiving the benefits and imposing the burdens pay for them. True, for OASDI, most of them are dead, but there's nothing wrong with reducing benefits of those now receiving them. Minimally, don't give them wage-indexed increases in their benefits. Why the hell should they get real wage increases when the majority of workers have had flat or declining real wages for decades, exacerbated by increasing payroll tax rates?

From now on, I will consider commentary that does not consider this point either unserious or disingenous.

Have I mentioned that British spelling and grammar are in almost all cases objectively inferior to ours? "Programme" and "-ise" are simply phonetically inaccurate. I also can't get over referring to singular entities like corporations in the plural. "Diageo have announced five new products" Again, that's simply wrong. Don't get me started on the excessive use of "got."

Jane, repatriate.

How does one "fund" Social Security by paying down the national debt? Here's how: by raising taxes (Congress and the President are unlikely to take the alternative course of cutting spending on things other than Social Security). As a result of higher taxes, workers would, at the margin, have less incentive to work, while saving (and therefore investment) would be reduced. The upshot would be slower economic growth, thus making Social Security even less affordable than it already promises to be (not to mention Medicare and Medicaid). "Saving" Social Security by paying down the national debt is a prescription for an economic death spiral.

I find assertions of the inequity of passing large debt burdens onto future taxpayers rather odd and amusing, particularly coming from the left. To the extent that there's any per capita economic growth at all, those future taxpayers will be, on average, better off than current taxpayers. And if you believe in redistribution of wealth from the better off to the less well off as a worthy ethical (or, perhaps more pragmatically, political) goal, then why not redistribute across time? I don't know any good reasons why redistribution of wealth among current taxpayers is a bad idea but redistribution between current and future taxpayers is a good idea.

Whoops! Reverse the "good idea" and "bad idea" in the last sentence.

Don,

Re; "To the extent that there's any per capita economic growth at all, those future taxpayers will be, on average, better off than current taxpayers."

Why assume economic growth? First, past performance is not a guarantee of future results. Second, special circumstances (e.g., demographic shifts, war, etc.) can make make even moderate growth insufficient to meet the requirements.

The assumption of growth is a basic flaw in the system. Not to mention that it is a questionable moral premise. At best it is taxing the rich. At worst, it is stealing from the poor.

Well, growth isn't so much an assumption as the dominant economic fact of the last 300-400 years in a substantial fraction of the world. Going forward, I don't think it's the craziest idea to suppose that technology will improve, new opportunities for trade will appear, and so on. I know past performance isn't a guarantee of future results, but I'll still bet you that the sun's going to come up tomorrow. Heck, I'll even give you favorable odds.

It is a common misconception that to reduce the budget we need surpluses. That is only true if you focus on nominal debt, a meaningless figure when comparing numbers over time. $1 trillion debt in 1945 is very different than $1 trillion in 2005. If a man has $10K in credit card debt and makes $20K a year he will view that differently than if he had the same amount of debt but made 10 times as much money.

Depending on how much GDP grows even with constant deficits the debt burden can drop to insignificant levels. Clinton had only 2 years of surpluses but the debt burden fell every year and by the time he left debt held by the public had dropped from about 49% of GDP to 33% of GDP. Even without surpluses the debt burden would have continued to drop although not as fast.

If the GOP (which is in control after all) is serious about fiscal policy it doesn't need to look for budget surpluses or even balanced budgets. We should not make the perfect the enemy of the good. Simply reducing the budget deficit will help a lot.

How can we reduce the deficit? Simple. Americans have made very, very clear they have little interest in reducing spending in any significant way. So we need to increase revenues, maybe starting by getting rid of Bush's tax cuts.

SS is simply not a major concern. Even if left completely alone SS outlays will only rise about 2% of GDP over the next 70 years. Military spending rose half that in just 3 years under Bush (more under Reagan) and we are not broke. Paying for SS is simply a political decision, one we can easily afford if we so choose, and polls show Americans, for now, are clear they want to keep SS.

er, I meant to say that to reduce the debt we don't need surpluses. Oh well.

GT,

Re; "Paying for SS is simply a political decision, one we can easily afford if we so choose, and polls show Americans, for now, are clear they want to keep SS."

Define "we". If you mean that "we", the current generation can decide to keep our benefits high by raising taxes on "them", the future generations, then certainly "we" can easily do that. If you ask me, we should turn the decision over to a panel of people between the ages of 15 - 25, and agree to live with their decision.

"Paying for SS is simply a political decision, one we can easily afford if we so choose . . ."

Fine fine, I'll just call Citibank and get the limit on my Visa raised from $5,000 to $10,000,000,000,000.

'Americans have made very, very clear they have little interest in reducing spending in any significant way.'

I suppose this quaint view of government spending might be touching in an eighth grade civics teacher, but in a professional economist....

' So we need to increase revenues, maybe starting by getting rid of Bush's tax cuts.'

Which MIGHT gain a per cent of GDP. However, when the Baby Boomers are all retired you'll need 9-12% more of GDP (source: Brad DeLong and Mad Max). That is impossible.

'SS is simply not a major concern. Even if left completely alone SS outlays will only rise about 2% of GDP over the next 70 years.'

More like 3.5%, but Medicare and Medicaid will rise too. Again, to keep all three, you're looking at the Federal govt. taking 25-30% of GDP. And it has never been able to maintain revenues much above 18%.

Patrick,

I thought you knew the difference between economics and politics. The assesment that Americans don't want lower spending is not based on economics. You don't know that?

And no, not 3.5%. The SSA estimates SS outlays will rise from 4.2% of GDP this year to 6.3% in 2080.

There is nothing impossible about raising revenues 9-12% if that is what we decide to do politically.

Yes, Medicare and Medicaid are the bigger problems. All the more reason to focus on them and not SS which is not a problem for many decades and may well never become one. In the end national healthcare (probably single payer but not single provider) are almost inevitable as are much higher taxes.

Which of the three SSA scenarios turned out to be the most accurate in the last 10 years? And what does that mean for the future? (hint: SS may well end up running surpluses)

AT,

If you don't know the difference between the government's taxing power and your income I'm not sure I can help you.

As for GT's opinion that the people are more interested in government spending and less interseted in taxes, he has a point. Half the population pays minimal or no taxes so why should they care about taxes.
The public's perceptions of taxes would dramaticaly change if people were taxed on they way they vote. Abolish the secret ballot and tax people on how they vote,no matter what your income is.In other words put your money where your mouth is.

cubanbo,

what do you mean that half the people pay no taxes? Are you just talking about income taxes?

It's more like half the population is too stupid or ignorant to notice the taxes they pay, except for the sales tax that is added on at the cash register. Which is why I advocate replacing all taxes with a sales tax...

So that means I can opt out of paying for wars with a dubious or non-existent ROI?

Sure, if you've got a bigger gun.

GT, to be precise that would be income taxes.
SS as the democrats put it, is a retirement plan.From the statements of benefits that the government sends out one would think it is an annuity therefore your contributions are not taxes but contributions to your retirement.
As for excise taxes and user fees, the amount paid per capita is trivial in relationship to the amount the federal government spends per capita, that is why income taxes are levied in the first place.
However if one were to take SS and Medicare contributions and consider them taxes, the portion of the population who's principle contribution to the federal treasury are those fees only, they are vastly underpaying relative to the benefits and services they are receiving so to put bluntly they are freeloaders. Hence why would they care about others peoples taxes when they are getting something for next to nothing.

markm:

I'll again mention the tax collection scheme I will enact once I declare myself emperor of the United States after being inexplicably and grossly deformed, in front of cheering throngs of legislators, oddly surrendering all their power, and mysteriously predict the downfall of my own regime by proclaiming the First American Empire.

1. There shall be no withholding of taxes from payrolls.
2. There shall be no tax expenditures for employer contributions to employee health and retirement plans.
3. There shall be no employer share of payroll taxes; the entirety will be paid by the employee.
4. There shall be no corporate income tax, though naturally dividends will therefore be taxed at the ordinary rate. (Yes, #2 is redundant.)
5. All federal taxes shall be payable in a lump sum on Dec. 26.
6. The same shall apply to all state taxes, when relevant.

Great idea AT but you forgot one thing: no and I mean NO tax exempt or non-profit organizations.

Great idea indeed, AT, all except for the tax due date. Given the fact that our general elections occur on the first Tuesday in November, wouldn't October 15 be a much more suitable date to have to pay?

David Walser, I like your overall concept very much--but how can you possibly think that "only a small percentage of us" use the roads? I think there's another aspect you maybe left out in your division of labor between user fees and general taxes: even if a government benefit goes to the general populace, it still may be preferrable to fund it with a user fee if the fee can be easily collected in some kind of rough proportion to the consumption of the benefit--which is pretty much the case with a per-gallon fuel tax. Now, if we could just find some way of keeping those funds from being diverted...

No, Kirk, I want the government to be responsible for ruining Christmas. That'll stick better.

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