public choice theory Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science." Gordon Tullock, 9872008, "public choice," '' The New Palgrave Dictionary of Economics''. . It includes the study of ...

, tax choice (sometimes called taxpayer sovereignty, earmarking, participatory taxation or fiscal subsidiarity) is an emerging type of citizen sourcing in which individuals or groups of taxpayers decide how to allocate part of their taxes of a

municipal A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate. The term ''municipality'' may also mean the gov ...

or public

budget A budget is a calculation plan, usually but not always financial plan, financial, for a defined accounting period, period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including tim ...

appropriation through a process of democratic

deliberation Deliberation is a process of thoughtfully weighing options, for example prior to voting. Deliberation emphasizes the use of logic and reason as opposed to power-struggle, creativity, or dialogue. Group decision-making, Group decisions are general ...

and decision-making. Its proponents apply the theory of

consumer choice The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption (as measured by their pr ...

public finance Public finance refers to the monetary resources available to governments and also to the study of finance within government and role of the government in the economy. Within academic settings, public finance is a widely studied subject in man ...

. They claim taxpayers react positively when they are allowed to allocate portions of their taxes to specific spending. Existing examples of tax choice includes:

Business improvement district A business improvement district (BID) is a defined area within whichever businesses elect to pay an additional fee (or assessment) in order to fund projects within the district's boundaries. A BID is not a tax, as taxes fund the government. BID f ...

and

Tax increment financing Tax increment financing (TIF) is a public financing method that is used as a subsidy for redevelopment, infrastructure, and other community-improvement projects in many countries, including the United States. The original intent of a TIF program i ...

Tax relationship between the state and taxpayers

The term tax sovereignty emphasizes the perceived equal status of state and

taxpayer A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms. The term "taxpayer" generally characterizes o ...

, instead of the traditional view of the dominant position of the state in

taxation A tax is a mandatory financial charge or levy imposed on an individual or legal person, legal entity by a governmental organization to support government spending and public expenditures collectively or to Pigouvian tax, regulate and reduce nega ...

. 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”. Proponents of tax sovereignty believe that in a traditional system of taxation, the

gives up their natural liberty in exchange for the protection from the state and the provision of

public service A public service or service of general (economic) interest is any service intended to address the needs of aggregate members of a community, whether provided directly by a public sector agency, via public financing available to private busin ...

s; which impels the state to take public interests as its obligation to maintain

social order The term social order can be used in two senses: In the first sense, it refers to a particular system of social structures and institutions. Examples are the ancient, the feudal, and the capitalist social order. In the second sense, social orde ...

and

citizen Citizenship is a membership and allegiance to a sovereign state. Though citizenship is often conflated with nationality in today's English-speaking world, international law does not usually use the term ''citizenship'' to refer to nationality ...

safety. This mutual relationship makes

a link between the state and taxpayers. Proponents of tax sovereignty believe that in such a relationship, the taxpayer endows power to the state to ensure the satisfaction of the

public interest In social science and economics, public interest is "the welfare or well-being of the general public" and society. While it has earlier philosophical roots and is considered to be at the core of democratic theories of government, often paired ...

. Furthermore, they propose that the

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”. Therefore, the existence of the state's perceived tax sovereignty is attributed to the

. The Swedish economist

Knut Wicksell Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a Swedish economist of the Stockholm school. He was professor at Uppsala University and Lund University. He made contributions to theories of population, value, capital and mon ...

’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".

Opinions

Daniel J. Brown 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).

Optimal quantities of public goods

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.

Foot voting versus tax choice

Foot voting Foot voting is expressing one's preferences through one's actions, by voluntarily participating in or withdrawing from an activity, group, or process; especially, physical migration to leave a situation one does not like, or to move to a situation ...

and voting with one's taxes are two methods that have been proposed to 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. Wallace E. Oates wrote: "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."

Legislative measures

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

In popular culture

When asked what her first

executive order In the United States, an executive order is a directive by the president of the United States that manages operations of the federal government. The legal or constitutional basis for executive orders has multiple sources. Article Two of the ...

president of the United States The president of the United States (POTUS) is the head of state and head of government of the United States. The president directs the Federal government of the United States#Executive branch, executive branch of the Federal government of t ...

would be,

Ellen DeGeneres Ellen Lee DeGeneres ( ; born January 26, 1958) is an American former comedian, actress, television host, writer, and producer. She began her career in stand-up comedy in the early 1980s, gaining national attention with a 1986 appearance on '' ...

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." In 2009, during the

Great Recession The Great Recession was a period of market decline in economies around the world that occurred from late 2007 to mid-2009.

Pope Benedict XVI Pope BenedictXVI (born Joseph Alois Ratzinger; 16 April 1927 – 31 December 2022) was head of the Catholic Church and sovereign of the Vatican City State from 19 April 2005 until his resignation on 28 February 2013. Benedict's election as p ...

advocated for a form of tax choice in his third

encyclical An encyclical was originally a circular letter sent to all the churches of a particular area in the ancient Roman Church. At that time, the word could be used for a letter sent out by any bishop. The word comes from the Late Latin (originally fr ...

. He wrote: "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." In 1983, a short story
We, The People
' by

science-fiction Science fiction (often shortened to sci-fi or abbreviated SF) is a genre of speculative fiction that deals with imaginative and futuristic concepts. These concepts may include information technology and robotics, biological manipulations, sp ...

writer Jack C. Haldeman II. The plot of the short story involves a man offered the choice to participate in allocating his taxes with the assistance of

Artificial intelligence Artificial intelligence (AI) is the capability of computer, computational systems to perform tasks typically associated with human intelligence, such as learning, reasoning, problem-solving, perception, and decision-making. It is a field of re ...

. : "We, the People," written in a flush of bitter anger, but with an undertone of hope -- has over the years gathered me more response than anything else I've ever written. I was told that someone once sent copies to all the members of the Senate when they were considering tax reform. It has been used in classrooms to teach the critical difference between a Democracy and a Republic. I wrote it years ago, but I feel it is as pertinent today as it was when it appeared in Analog magazine. - Jack C. Haldeman II
Political Science Fiction
The short science fiction story by Jack C. Haldeman II, ''We, The People'' was originally published in September 1983 in ANALOG.

Examples

Iceland

Taxpayers in Iceland who belong to an officially registered religious group or secular humanist organization must pay a congregation tax (Icelandic: ''sóknargjald'', plural ''sóknargjöld'') which is deducted from income taxes and goes to the individual's respective organization. In the past, the ''sóknargjald'' of those who do not belong to any recognized religious organization went to the

University of Iceland The University of Iceland ( ) is a public research university in Reykjavík, Iceland, and the country's oldest and largest institution of higher education. Founded in 1911, it has grown steadily from a small civil servants' school to a modern co ...

, but this was changed in 2009. In cases of individuals not belonging to a registered religious group or secular humanist organization, the amount that would otherwise be used for the ''sóknargjald'' remains now part of the income tax budget. In 2015, the monthly ''sóknargjald'' amounted to 824 Icelandic krónur, about $US6.

Italy

Italian taxpayers devolve a compulsory 8 ‰ = 0.8% (eight

per mil The phrase per mille () indicates parts per thousand. The associated symbol is , similar to a per cent sign but with an extra zero in the divisor. Major dictionaries do not agree on the spelling, giving other options of per mil, per mill, p ...

, i.e. eight per thousand) from their annual income

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

return to an organised

religion Religion is a range of social system, social-cultural systems, including designated religious behaviour, behaviors and practices, morals, beliefs, worldviews, religious text, texts, sanctified places, prophecies, ethics in religion, ethics, or ...

recognised by Italy or, alternatively, to a state-run

social assistance Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance ...

scheme.

Spain

The Spanish tax declaration form has one checkbox for the Catholic Church, none for other religious groups and a second checkbox for activities of social interest. These checkboxes don't influence the total tax amount, but, for each ticked checkbox, 0.7% of the total amount are used as indicated.

Japan

In Japan, city residents can choose to allocate a portion of their taxes to their hometowns...aka hometown tax. In 2021 more than 7 million taxpayers choose to do so resulting in a total allocation of $6 billion
source
.