Harold Winslow

Public Finance

Proposal: pair taxes and expenditures in a logical manner

Taxes on use of natural resources should fund environmental protection and defense spending. Taxes on IP should fund scientific research, education, and the arts. Taxes on crime (fines) should fund the justice system and regulators. Taxes on consumption (not income) should fund welfare.

Note: natural resources include land, minerals, waterways, radio spectrum, orbital paths around the earth, etc. Use of these includes air, water, and noise pollution, and those should also be taxed.

This approach is straightforward, generally taxes things with negative externalities while subsidizing things with positive externalities, and would positively limit the scope of debate about how to fund certain programs.

Proposal: set the consumption tax between 0% and 100+%

Consider a consumption tax that sits at 0% for any level of consumption between $0 and the previous year's median level of consumption. It then increases continuously (i.e. each dollar is its own tax bracket) until reaching 100% at the highest level of consumption achieved by anyone the previous year. Consumption levels above that amount would be taxed at a rate higher than 100% (this is viable since the tax is only on consumption, not total income). Setting the rate at 0% up to the median consumption level helps the bottom half of the country to "keep up" with the top half, and allowing the top rate to exceed 100% curbs the worst of competitive consumption (yachts, private jets, etc) which can trickle down the income ladder and leave everyone feeling like they need to make and spend more.

Proposal: require a balanced budget every ten years

Countries always find ways to get themselves into too much debt sooner or later. At the same time, deficit spending can be useful to soften recessions. This is one rule which forces the state to remain fiscally responsible without hampering its ability to spend during emergencies. I propose that this rule work like first downs in football: as soon as you achieve it (the first down, or the balanced budget), you automatically get another ten (yards, or years). One disadvantage of this proposal is that it makes the state somewhat more vulnerable to attack, since enemies would know when the state was approaching a fiscal limit and wouldn't easily be able to increase expenditures. But perhaps this is a good thing since it would push leaders to promote the peace.

Proposal: allow for a small amount of tax choice

Let people allocate perhaps 5% of their total consumption tax bill to whatever governmental program they want. I doubt that this would make the government more efficient, but people would probably like it, and that's a big step forward from the status quo.

Proposal: improve politician pay

I'm doubtful that politicians are paid enough. The public doesn't like it when Congress gives itself a raise, but this is probably a case of being penny wise and pound foolish. US Senators currently make $174K per year. That's a lot of money for the average person but hardly an elite level of compensation. Someone who would make a great senator should not have to choose between making $500K+ as a corporate executive, management consultant, financier, legal partner, or lobbyist, and making a third of that as a senator.

By setting salaries too low we lose the ability to attract some of the most talented people in the nation to some of the most important jobs. With such extreme differences in compensation between public elites and private elites, it seems plausible that the average regulatory body is a little slower and a little less motivated than the entity they're regulating. And if outrunning the regulator fails, paying them off is always an option - one that's probably much more appealing to a politician who doesn't feel like they're fairly and generously compensated.

The structure of the compensation package could also be improved. First, the exact dollar figure should be pegged to a multiple of the median American's wage, before taxes and transfers. To be consistent with the impulse to set salaries higher, we might pay congresspeople 15x the median wage and the President 25x the median wage. This way of setting pay eliminates the need for Congress to periodically give itself a raise. More importantly, it gives politicians (particularly those who intend to remain in office for their career) an incentive to focus on economic policies which benefit the median (actually, the below-median) American, which is where most welfare gains are likely to be concentrated anyway.

Second, we should split compensation between a salary and an allocation of bonds. Imagine that members of congress, the cabinet, and the President all received a package of US Treasury bonds with varying maturity dates upon taking office. The total market value of the bonds might be half the official's total compensation for their term; the other half would be given as normal salary throughout the term.

Officials could convert these bonds into cash in two ways depending on the duration of the bond. For short-duration bonds which mature during the politician's term, the official would receive the principal at the maturity date. For longer-term bonds, holders would be forced to sell as they exit office. If they have done their job well, the value of the bond should be greater than it was when it was issued (i.e. when they entered office), and so they should end up with a larger compensation. If they have performed poorly (at least in terms of the bond market's assessment of the nation's long-term fiscal viability), then they will receive less compensation.

Note: being a forced seller is never good, especially if others know it. However, the US bond market is big enough that the forced sale of a few politician's holdings during a particular week shouldn't have a noticeable effect on the market price.

On the whole, we would expect this scheme to make politicians less responsive to lobbyists, more responsive to the needs of the poor, and more responsive to the collective judgment of the bond market.

Proposal: allow certain forms of service to substitute for taxes

Serve in the military and you pay no taxes for life. Serve in any public-funded role and pay no taxes on the income you earn through that role. Donate a kidney and you pay no taxes for 20 years. Donate eggs (that are actually used), or plasma, or blood, and get $x off your tax bill. Play around with the incentives until there are no longer shortages of these commodities.