Tax choice

The term tax sovereignty emphasizes the equal status of state and taxpayer, instead of our traditional view of the dominant position of the state in taxation. Tracing back to the legitimacy of the state, Viktoria Raritska points out that “the legitimacy of the state as a formal institution is substantiated by the people’s refusal of their freedoms and an agreement to submit to government in exchange for the protection of their guaranteed rights”.[6] The taxpayer gave up his natural liberty in exchange for the protection from the state and the provision of public services, which impels the state to take public interests as its obligation to maintain social order and citizen safety.

This mutual relationship makes taxation a link between the state and taxpayers. The taxpayer endow power to the state to ensure the satisfaction of the public interest. In fact, the taxpayer has granted the state tax sovereignty. “It is due to the fact that the taxpayer endows the state with tax sovereignty. Thus, state has not only the rights on taxation, but also the obligations, which correspond to the taxpayer's rights”.[6] Therefore, the existence of tax sovereignty is attributed to the taxpayer.

The Swedish economist Knut Wicksell’s theory also argues that "taxation should be based on the principle of value and counter-value, as if taxation was a voluntary transaction between the individual and the state".[7]

Daniel J. Brown[1] examines tax-target plans in educational programs.

Alan T. Peacock, in his 1961 book The Welfare Society, advocates greater diversity in public services (education, housing, hospitals).

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.[8][9]

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[10]

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.[11] The 2007 Opt Out of Iraq War Act would have allowed taxpayers to designate money toward certain social programs.[12] The 2011 Put Your Money Where Your Mouth Is Act would have allowed taxpayers to make voluntary contributions (not tax payments) to the government.[13][14] These later bills died in committee.

• When asked what her first executive order as president would be, Ellen DeGeneres advocated a mix of voluntary taxation and tax choice, stating "you should get to choose where your money goes instead of giving it and just letting them decide, I think you should decide."[15]
• In 2009, during the global financial crisis, Pope Benedict XVI advocated for a form of tax choice in his third encyclical:[16]

One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State. Provided it does not degenerate into the promotion of special interests, this can help to stimulate forms of welfare solidarity from below, with obvious benefits in the area of solidarity for development as well.

• Baker, Russell – Taxpayers' Choice The New York Times. 1990
• Binowski, Brittany – Why Mandatory Taxes Are Bad – And How The Government Should Fix Them (But Probably Won't). Forbes. 18 June 2012
• Blinder, Alan S. – The Economics of Public Finance: Essays 1989
• Buchanan, James M. – Public Finance in Democratic Process: Fiscal Institutions and Individual Choice 1967
• Buchanan, James M. (1963). "The Economics of Earmarked Taxes". Journal of Political Economy. 71 (5): 457–469. doi:10.1086/258794. JSTOR 1829016.CS1 maint: ref=harv (link)
• Le Grand, Julian - The Other Invisible Hand: Delivering Public Services through Choice and Competition 2007