Americans hate taxes, and they give well to charity. Fewer are giving but donations remain high, at $410 billion. Why so much to charity? Because the donor can choose where the money goes. So why not let Americans choose where their taxes go? They will give more willingly to society.
Let’s see how this might work. Suppose that in July 2020, the government will propose a budget, including all spending, for 2021. Then it will send a letter to all taxpayers (including corporations and trusts), detailing how much money it would like to spend on everything from defense to the environment to costs for running the government. It will then ask each taxpayer for a donation and a statement (due September 1, 2020) as to which category or categories the taxpayer wants to fund with the donation. The taxpayer can pay the entire donation on January 1, 2021, or a quarter of the donation (on January 1, April 1, July 1, and October 1) or a monthly payment on the first day of the month.
On November 1, 2020 the government will announce how much in donations it expects to receive in each budget category. If a category gets more in donations than the budget required, the funds will remain donated for that category. The money can be spent for that category in 2021 or the excess can be carried over to 2022. If the government is short in certain categories, it will then collect the shortfall in a special tax in 2021.
Taxpayers will be asked to file their tax returns by April 15, 2021. They can take a tax credit for every dollar donated. If their taxes are lower than the donation made, they will carry the credit excess over to 2022. If the taxes are higher than the donation made, they will pay the difference. If the money collected in donations and taxes is less than the amount necessary to fund the budget, then a special tax must be paid to cover the shortfall. But the special tax will only be paid by taxpayers who failed to donate enough to cover their tax bill. Entities paying the special taxes will not be permitted to choose where that money goes.
For corporations, various subsidies and other tricks used to lower or eliminate taxes will be ignored in calculating the amount to be compared to donations. This should increase the amount that corporations need to pay if they don’t make generous donations.
If a budget category does not receive in donations at least 50% of the amount provided in the budget, then the budget amount will be cut by 25%. If a budget category does not receive in donations at least 70% of the amount provided in the budget, then the budget amount will be cut by 15%. If a budget category does not receive in donations at least 90% of the amount provided in the budget, then the budget amount will be cut by 5%. This rule permits taxpayers as a whole to vote indirectly on how much should be spent for particular items.
Poor people whose tax rate is 10% or less do not have to pay the special tax.
It is certainly possible that some categories (e.g., defense) might receive very low donations. However, I would suspect that corporations and investors in defense contractors would donate to the defense category to make certain that the budget isn’t cut.
The purpose of these rules are to give the public more say in government spending. First, by making the initial payments into directed donations, the public is meant to understand that the government spends money at their direction. If they give a lot of money to fixing the environment, it will be spent for that purpose. Second, if they do not elect to donate to a category, the money spent on that category will be cut. Of course, the wealthy can direct more money to categories, but they already do that through the legislative process. In effect, this gives people with lower income a say in how their money is spent.
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