| Wesley Bruce |
| 7 Wandoo st O'Connor, 2602 Australia. |
| E-mail: wesleybruce@iinet.net.au |
| Ph 612 61612151 |
| Payer Directed Fiscal System. |
| A payer directed fiscal system or PDFS is a system designed to capture the dynamics of the free market in a system of government financing. PDFS is compatible with flat tax, income tax or companies taxation systems and can, with a modification, be used to allocate the funds from goods and services taxes and resource taxes. It takes a large amount of fiscal power away from parliament returning them to the function of a house of review and moving parliaments away from the house of administration function that has developed over the past few hundred years. It shifts the pork barrel out of their hands and into yours. |
| With the arrival of the information superhighway with personal electronic transaction systems and high-powered cryptology coercive systems of taxation may founder. Governments may be put in a position where they are unable to monitor transactions well enough to accurately access tax liabilities let alone enforce them. Asset forfeiture based on a guessed liability might develop as the only way to engage in coercive taxation. Those that believe that the government is miss-spending their money will be inclined to retain control of their money and with the technology of information confidentiality available on the Internet they will be able to do so soon. |
| We must find a way to give the average tax payer sufficient motivation to give willingly and such motivation comes only where the person who pays for the government service has some sense of being in control of the funds. The concepts and methodologies of 'User pays' works for some government activities but not all. You could in theory run a user pays military or criminal court system. You might also develop an insurance like system of army or national police funding. But these take time to do and require a high level of user education. To bridge the gap between government services financed by the user pays system and coercive taxation system, a system of charity financed government public service is thus proposed. This is not a panarchist system where people are able to choose multiple governments geographically sharing the same land and economy. It might however be seen as at test of the fundamental panarchist idea of voluntary taxation. |
| It is my belief that the taxpayer that controls the expenditure of his or her own funds will be much more willing to pay taxes. The diversity of interests in society will tend to finance a diverse range of government agencies. If the government agencies are operated as "para-charities" the distinction between donations to tax deductable charities and the payment of taxes is blurred creating a competitive environment. Government departments or agencies that disregard the taxpayer will be under-funded and those with poor funds management or that produce no apparent benefit to any taxpayer or any taxpayer?s relatives, will be unfunded. |
| In the income/companies taxation case a conventional tax assessment is made and the taxpayer is informed of the resultant liability. A Company, Co-operative or partnership may choose to divide the company tax across its shareholders or may authorise the company directors to allocate the funds. |
| In a tax system based on the use of a goods and services tax, resource taxes or tariffs the revenue is divided by the population and the sum of Per Capita Revenue, called PCR, is sent in the form of special stamps or special government notes or computer notation that is valuable only to a DRO described below. The citizen then allocates this amount, in the manner the citizen chooses. Individual may pass the PCR to another at a discount, handing his fiscal responsibilities over to someone wealthier and thus more skilled with financial choices is reasonable behaviour. |
| The DRO |
| A Donation Recept Office (DRO) is created with accounts for each government agency and some subdivisions of some agencies. The DRO is an agency formed within the tax department with an independent charter and a board, and has carefully restricted powers. It is empowered to administer the transfer of the donated money to one or more clearly defined fields of government activity. An indirect donation to one or a mix of government agencies can be made via the appropriate DRO account. The donation is totally "Tax" deductable. The receipt forwarded to the governments national tax agency where necessary. The taxpayer may file a form (on paper or in electronic form) at his accountant listing selected regional and national government agencies that his taxes are then directed to. |
| The DRO is not allowed to reveal the identity of the taxpayer paying a sum to its recipient agency or any agency that is not a recipient. Thus all donations are anonymous. The government agency has no way of knowing which citizen is paying for its government service. Public servants must treat all contacts with the community as if the service recipient were a valued paying customer for the service since the government staff have no way of telling donors from non donors. In this manner the government staff become true public servants. Today many government staff treats the public as a secondary or tertiary priority behind protecting their own position in the tax funded system. Since tax is compulsory, the taxpayer/service recipient is seen by some public servants as a captive customer, unable to take his money somewhere else in response to poor service. |
| Statistics may be kept on the size of the donations going to each agency from each general class of taxpayer group. These groups may be identified by total donation size, revenue type (income, companies or PCR revenue) and region. This data is to be published as part of the national statistics ideally by an independent agency or auditor. |
| The regional or state DRO accounts. |
| The list below includes most agencies that would require DRO's accounts at the local level. Where a family lives in two or more areas donations to agencies in these additional areas may also be allowed (The extent to which this will be allowed should be up to a legislature to decide. This will become a major part of the political debate at the regional level). The list includes two alternative shells to education and to municipal services. The author recommends them. |
| Hospitals, |
| Schools and education, |
| Educational voucher systems where available (alternative shell), |
| Local welfare, (this may be free bus tickets and rates exemptions, or it may be the local community chest or it may be a fund that creates permanent trusts for the permanently disabled), Each with it's own listing. |
| Local civil defence, fire and rescue agencies, |
| Public transport, |
| Infrastructure (roads, bridges, drainage and canals etc) |
| Local parks, recreation, etc |
| Local telecommunications, |
| Municipal water, sewerage and power. (Conventional water, sewerage and power) |
| Autonomous household water, sewerage and power. Low interest loans for grey water systems, cogeneration or roof top solar, etc. (alternative shell) |
| The National DRO accounts. |
| The following would be listed at the national, undivided level. With the exception of Civil Defence, there is no local level for these agencies. Where moral or technical constraints create the need for alternative agencies in a hierarchy, then a shelled structure should be used. The payer may allocate to the outer, general shell, or the inner shells or an alternative inner shell based on a different approach to the problem or a componant. (Civil defence, Millitary defence, Foreign Affairs are in effect a set of shelled structures within the "defence and foreign Affairs" outer shell.) A pacifist may be inclined to pay 'civil defence' or ?defence medical? even if military defence is unacceptable to him or her. |
| National services are listed together at the national level. If there are intermediate levels of government they too should be listed and the "state" list made available to all, even those citizens in other states. |
| Defence and foreign Affairs (outer shell), |
| Civil defence (Alternative componant), |
| Defence veterans and medical services (Alternative componant), |
| Military defence (componant), |
| Foreign affairs (componant), |
| Trade negotiation and facilitation teams, |
| The parliament (The expenses of running the parliament itself. Not funds for allocation.) |
| Multilevel agencies may be represented by more than one DRO account with the taxpayer free to choose between the local, state or national level. The following are multilevel agencies. The local agencies above are also competitive with these multilevel agencies where they overlap. |
| Police, Courts and Prisons (outer general shell), |
| Courts and prisons (inner shell), |
| Courts and education (alternative shell), |
| Police (component), |
| Courts (component), |
| Prisons (component), |
| National research and education (outer shell), |
| Research (componant), |
| Education (componant), |
| National welfare and skill training (outer shell with education as an inner shell), |
| Disabilities support. (component), |
| Baby insurance facilitation (insuring all babies against the top three permanent disabilities, ie Autism, downs syndrome, cerebral Palsy, etc) (Alternative shell) |
| Unemployment welfare (componant), |
| Unemployment insurance facilitation (information, premium loans to cover the first few years and ensuring transferability) (Alternative shell) |
| Environmental repair agency; "Green corps"(Alternative inner shell for unemployed [or unemployable] greenies), |
| Disaster fund, a national or regional "insurance policy" (Ideally paid as infrastructure repair funds and insurance top-up funds for the under-insured), |
| Interregional environmental agencies, |
| National transport infrastructure (highways, rivers and ports)(may be an Outer shell), |
| Agricultural agencies (may be an outer shell), |
| Organic Agriculture research and transition loans (Alternative shell) |
| Telecommunications infrastructure and facilitation |
| These convert government agencies into several "Para-charities" whose funds go only to the agency nominated. |
| Many libertarians and fans of Ludwig Von Mises will argue that I have left in many bureaucracies that are dysfunctional to the point of wasting all the money given to them. This may be perfectly true but we will only prove our case if we can place such agencies in the context of a competitive environment. Dysfunctional bureaucracies will have to change or be defunded. Heads of state, heads of department or parliaments faced with starving departments must find a way to make them more marketable to the tax payer. They will be driven towards free market solutions. |
| Three other government "para-charities" should also be created. |
| The head of states discretionary fund (HOSDF); The funds of which may be spent by the head of state into any of the other government para-charities at any time except during an election campaign for the head of states post. This may also be called the parliamentary (or Prime Minister's) discretionary fund where the head of state duties does not include administration of government funds. (If you can find a better name use it.) In an election campaign the HOSDF is split between the DRF and the RBF below. Where there are multiple competing heads of state, ie a monarch, Priminister and/or president then multiple HOSDF accounts are possible. |
| The depressed region fund (DRF); donations to this fund are redirected to the three geographic regions (within the nation) with the lowest revenues. These revenues are calculated by averaging over the previous three years. |
| Generally these will be paid on a dollar for dollar basis as donation matching funds. In some cases these funds will exceed local revenues so that the equation is proportional to but well above the local donations. Where the majority of the donors in rich regions and their elected representatives see the priorities of the tax payers in the depressed region as the cause of the regions low revenues an alternate development fund may be created to meet the development need. This may be a government or private project. How the funds are divided between the three poorest regions must be chosen to fit the circumstance. The tendency will be for funds to flow to the poorest. A 50% to the poorest, 25% and 25% to the next two poorest regions may work well. |
| The Revenue Bank Fund (RBF); donations to this fund become a rolling interest free loan fund that registered government agencies, both local and national, can borrow from. All borrowing's from this fund must be paid back at their allotted time. The head of state should not be allowed to top up the HOSDF with borrowed funds from the Revenue Bank, since there is a good chance that an unpopular head of state would never be able to repay the debt. His or her access to discretionary funds would continue to fall. It would be unwise and unfair to burden the incoming head of state with the debts of the out going head of state. |
| Any agency receiving more than it can spend in the financial period may loan the excess to the Revenue Bank. It may reclaim the amount at a later date (the reclaimed amount is not a loan to be repaid). Funds accumulating in the revenue bank may be lent or invested to raise an income to counter inflation's effects on the fund. The excess profits, after risk and inflation has been accounted for, should either be compounded or should go to the depressed region fund. Hopefully a system of gold based currency or barer share based currency will be implemented by the same society to kill inflation forever. |
| The government should also publish a list of private non-profit charities, for profit companies that provide pro-bono services and charitable private environment agencies (any or all deductible charities) for those who choose to allocate their taxes to these. |
| A Market for governance. |
| The PDFS system is in effect a system that converts all government income into donations. It allows the taxpayer to choose how his or her funds will be spent. If the individual chooses to concentrate his/her taxes in one area then that is possible. Yet when the individual needs an under-funded service the individual has ignored he is able to blame no one but him/her self. The individual is able to adjust his or her payments over time. |
| There will be a transition period where people will need to learn how to use the PDF System wisely. Allowing DRO donations to be only ten percent of a tax payers total taxable income in the first year may be wise with a twenty five or thirty percent increase each subsequent year. This is a short steep phase-in because there is a risk that successive governments may fail to allow the transition to 100% over the subsequent years producing an incomplete solution to the problems PDFS is designed to fix. |
| A taxpayer unsure of his priorities can use the HOSDF, DRF or RBF. The Head of State's Discretionary Fund allows the people to support an elected leader and allows him/her to set the fiscal agenda. Those who do not support the leader are free to direct their tax funds to areas with a different set of priorities. Where the head of state is elected with a large majority of the votes, that leader will also tend to be furnished with a good supply of funds to direct as he or she sees fit. An unpopular leader may find him-self starved of funds for projects that are publicly unpopular. It is also possible for the population to elect a head of state that is a good lawmaker or good at foreign policy but is not a good manager of funds. Such a leader would receive the majority of votes but little Discretionary Funds would be risked on him. |
| The Revenue Bank Fund allows taxpayers with foresight to invest in the future. Since the funds are loaned, repaid and reloaned they become a permanent national savings system. It should also even out revenue flows over time with the effects of cyclic economic fluctuations on government revenues being reduced. The revenue bank can compound its profits growing with the economy. It should not however end up owning more than 20% of the economies shares, land or other assets. As a consequence it is also able to pass profits on to the DRF. |
| The Depressed Region Fund allows transfers or cross subsidisation of one economic region by other regions that are better off. Taxpayers in richer areas are aware of the need for such transfers. They grumble about them only because they have no sense of control. Media reports and advertising will inform people. National pride and sympathy will tend to result in significant amounts going to this fund. In an emergency where the need is large and obvious, people will be inclined to direct a greater transfer of funds to the area. Since the funds are used in proportion to the local population's taxation expenditure, local knowledge and priorities are used. If the richer regions see these local priorities as being wrong then the flow of funds will dwindle. This will tend to prevent regions becoming dependent on the Depressed Region Fund. It should also be noted that the taxpayer has no guarantee that the area he expects to be the poorest may in fact be the poorest at the time the funds are spent. It is however reasonably predictable. |
| Where a region is permanently depressed a regional development agency naming the region specifically may be added to the list of national agencies allowing people to direct their funds directly to that region and its development. One group of people who may direct funds to a region they don't live in would be people from that region or people who eventually plan to go to that region, either on a holiday or permanently. People with relatives in another region may also direct some of their tax funds to the government services their relative needs the most in that region. The DRO is designed to accommodate such transfers. |
| If the total amount of funds going to a given agency exceeds their budget for that financial year by more than 30%, the excess goes to the Revenue Bank. Where the budget is higher than the funds needed in the opinion of the Head of State he/she may publicly say so. All budgets must be published except defence and foreign affairs the budgets, both of which are sent to the DRO board and a closed committee of parliament which decides if the total is reasonable. The parliament and the DRO will then separately publish the budget totals but not the details. Arguably most budgets will be over the revenues available, as they always have been but a budget that is consistently 30% above their income three years running will be excess. [ I know senor public servants will complain that these budget criteria is too restrictive. "We really need that money," they will correctly say. But under PDFS they will have to convince the population not a closed cabinet meeting.] |
| QUESTIONS. |
| The free rider problem: This is a situation where the user of a service does not pay for the service. Taxes are compulsory in order to prevent the free rider from escaping the obligation to pay for the services that the government provides to him or her. The free rider problem's title is derived from public transport but the prevalence of user pays approaches in this field make it a poor example today. |
| The free rider problem is most commonly raised in connection with roads. The highways traditionally have been free to all, with no user fees. Rates at the local level and taxes at the national level pay for the costs of the highway. Tollways can be used on high volume intercity and intra-city routes but a toll prevents those with no handy cash from travelling. (Those who have lived under dictatorships also point out that a toll point is an easy point for controlling freedom of movement.) Until recently a general system of automatic tolling that did not slow traffic did not exist. |
| Defence is arguably the area where the free rider problem is greatest. It is difficult to defend an area without defending all it's citizens regardless of whether they are paid up on their "defence department fees" or not. However every pacifist is a defence free rider. |
| Some libertarians have looked at a system of totally privatising defence under a very strict set of contractual conditions and rules of engagement. Some have looked at creating "competing" defence agencies. There are systems planned to be financed by totally voluntary donations and others based on a membership fee levied on the people defended. However a single undivided defence agency would be required to avoid delays caused by jurisdictional and Co-ordination problems. The risk inherent in competing semi-independent defence bodies is that they may find themselves on the opposite sides of a conflict, with contradicting information on the causes of the conflict. Contracts are useful where the parties are able to take the time to seek clarification or arbitration but neither process is fast enough in time of war. |
| There are very few people who actively refuse to pay taxes because the money is spent on an activity that they object to on moral grounds. These include pacifist groups and anti-abortion groups. Some honestly believe that they will be held responsible in the future for the way their taxes are spent today. Often these people are willing to go to jail to make their moral point. The cost of the court case and the cost of accommodating them in jail are often greater than the sum of tax revenues involved. It is thus easier and cheaper to allow these people the freedom to choose not to pay any tax to the Millitary or abortion clinics, allowing them to direct their funds elsewhere. It should also be noted that in a time of war many free riders pay in ways that are not tax related. Pacifists volunteered to serve as battle field medics and many died on the beaches of Normandy. Japanese Americans, who would have been classic defence free riders, served in Europe fighting the Nazis even though their families were in detention camps. |
| In PDFS if the individual chooses to concentrate his/her taxes in one area that is possible. The free rider is allowed. Yet when the individual needs an under-funded service that he has ignored he is to blame. Those groups who see the need for a service that others see as unimportant will be free to disperse or donate much more of their funds to the area because the free rider is spending more of his money in the other areas. The total amount of funds is unchanged since the total volume of funds is assessed normally at rates set by the government or by another popular mechanism. |
| Welfare Services: Many will argue that welfare services will be under-funded. The belief that the rich do not care for the genuinely poor and disabled is, I believe simply, left wing propaganda. The rich don't like financing the lazy but they will spend money on the poor if they see that the money is well spent. The worlds richest people often donate millions to charity in their community. Libertarians argue that, if given the choice, people will direct their money to the best solution be it charity; a private business that employs the disabled; government or even the beggar on the street corner. All have their costs or risks. PDFS is designed to place them in part on an equal par. Debates in parliament shift from arguments about revenue allocation to arguments about which non-government entity deserves tax deductibility. |
| Where the divide between rich and poor is along racial lines problems could arise. If the rich are racist and refuse to fund the poor for that reason then a big problem will arise in any welfare system. No system of welfare will solve the problem of inequality that results from racism. Racism must be dealt with directly through education, laws that result in true equality of opportunity and in some case's land reform where the current land distribution is the result of past racist acts and government backed land confiscations. The same applies for sexism, religious discrimination or ageism. |
| The war maker problem: Some will point out the risk that since PDFS turns defence into a charity there will be a temptation for the defence staff to drum up donations by creating a situation of military, terrorist or racial threat. If defence donation's become propaganda driven this is a possibility. However the process of convincing a small number of government officials to move to a war footing is easier and much less obvious than convincing the population as a whole. Where the funding of defence is controlled by a small number of people the risk of secret illegal activity and Military interference in government is higher. |
| In the PDFS case the process would need to be totally public and those opposing the hawks would have an equal chance to counter the claims publicly. Countries without a free press and a free opposition are the exception. In such an environment PDFS will not work, cannot work and should not be tried! No other system of public finance will work in such an environment either. Liberty and Dictatorship can't Co-exist. Where dictators make a sham of trying to introduce a mockery of PDFS it should be rejected by the rest of the world as fake. |
| PDFS will not prevent a determined Military officer from making a Coup d'etat. He would simply abolish the system in the process of centralising control. However it would make it imposable for him to claim that nothing had changed. |
| Added Bureaucracy: Some might say that each town in each region would need a Donation Recept Office (DRO) adding to the total amount of bureaucracy. The DRO may be an accountant's office or part of the post office. These offices are used today to process taxation. An electronic DRO may be formed as part of the Internet or information super highway if secure communications and safe transactions are available on the electronic networks. A simple PDA based system is also possible with each DRO account listed so that the user can allocate funds, it can also speed the process of anonymously logging statistics for study and publication. |
| Tax scratchies. |
| A simple way to maximise anonymity while also maximising speed and ease of personal control is to create tax scratchies. Cards with a attached receipt and the departments listed with a thin polymer covering a machine readable mark. |
| Example |
| There would be more detail including amount, and authentication marks but the above layout shows the options. An opaque polymer would be scratched off to exclude the agency from the donation. The money would be divided equally between the numbers of remaining "included" agencies. |
| If the outer shell agencies is not scratched out, the shell agencies, would be ignored. i.e. If the National transport infrastructure was included thus the shell agency, "highways", would not need not be scratched out. |
| The cards would be sold at post offices for denomination of 5, 20, 100, 1000 dollars. When the receipt is removed, the unwanted agencies are scratched out and the fold over tab or tape covers it to prevent tampering. The card is then dropped into a box for later reading or a machine that scans through the fold over tab. The machine gets the results and emails them to the DRO. |
| The receipt is forwarded normally to the tax agency with the normal tax return. |
| Coercive tax assessments. |
| Some will argue that I have retained the most aggravating part of taxation: the tax assessment and the resulting enforceable liability. I have done so because this is meant to be a transitional system, part way between coercive tax and voluntary service funding. If it works the average taxpayer may willingly pay in excess of his tax obligation because he sees the need for the services he or she chooses to fund. Historically the poor pay a greater part of their income to charities than the middle class. They feel the need more acutely. To them the phrase "there but for the grace of God go I" is closer to home. If the national statistics reveal that the majority is paying more than their assessed tax liability then the idea of discarding the expense of tax assessments and most tax law in favour of self assessment and full voluntarism becomes much more politicly saleable. |
| It should also be noted that there will be a much greater tendency for people to fund government services directly rather than spend their millions on political campaigns. The billions squandered on attack ads, push poling and publicising pork barrel promises will flow instead into real government services or competing charity. |
| Economic signals. |
| Payer Directed Fiscal System is meant to be a system of empowerment of the taxpayer while retaining the anonymity of taxation. Unlike a direct user pays system the poor are not locked out or stigmatised. The rich are not burdened with paying for services that they see as useless. Both, by the allocation of funds, are able to signal to government agencies their approval or disapproval. Free market dynamics are only approximated; this will not give the government agencies as good a signal as the price system does. The task of finding viable private enterprise means of furnishing government services still exists but PDFS gives a better signal than an election every few years. I would also recommend that the parliament publish a measure of the "per-capita revenue" of each agency and sub-agency. Changes in this "per-capita revenue" value would signal quickly to agency employees and donors alike how well the agency is fairing. It is also an easier number to understand than billions of dollars. |
| Conclusion |
| I believe that eventually many will pay more than their assessed taxation because they see the needs. At this point the system of coercive tax assessment will be seen as an unwarranted cost and will quickly be scraped with the tax rates as they are published becoming only a set of free recommendations. The dynamic of coercive taxation will not be removed unless we find working alternatives. Any transition process must be structured to keep the system from collapsing into chaos where the advantage lies with the communists and the corrupt. If free market systems of providing "government services" are found PDFS is designed so that either a wise department head or a smart parliamentarian can simply add the new entity onto the list of accounts or onto the charity list. Law makers are returned to the task of passing laws rather than messing about with other peoples money. |
| Additional structures required. |
| Very few government agencies fall into this last category with no benefits to the relatives of any taxpayer. Yet some government projects where there is extreme subsidisation of an entire group or region do exist. Some non-taxpaying communities or groups of people live at other people's expense with no benefit at all to the payers. People can see the need for this where a person is permanently and incurably disabled at no fault of their own, and in the short term as disaster relief or job retraining. Most see the point of this kind of help because it could be them that need's the help if they were unlucky. Where the funding becomes long term in the absence of another plan to eventually make the recipients at least self sufficient, funding under PDFS will tend to eventually go elsewhere. Politicians and charity organisations will be encouraged to create a much more permanent solution. |
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| National and international environmental agencies, |
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| Wesley Bruce |
| 7 Wandoo st O'Connor, 2602 Australia. |
| E-mail: wesleybruce@iinet.net.au |
| Ph 612 61612151 |
|
| Coptright 2006 |
| It is possible that PDF system may serve as an alternative to a tax cut. There are two functions for tax cuts: to buy votes and to stimulate the economy. Many will point out that shifting a unit of revenue from normal taxation to PDFS will do neither. This is correct, giving back control will have some vote winning value but not much and there should be stimulatory benefits long term if PDFS works but in the short term it should not stimulate the economy. If you want stimulation then changing the underlying tax rate so people a free to stimulate the economy by buying what they choose or investing it wisely is still available in my system. However introducing PDFS as an alternative to a tax cut Will have a benefit. It will allow the population to learn the system and it will tell people what costs and benefits the system produces. However introduction in place of a tax cut will only work if you have framed the law and administration in a way that it costs very little to run. |
| The largest group of free riders are the poor and the unemployed. People that can't be taxed because they have no income or have a negative income. Getting these people employed will help but some societies have minorities that are either too old or sufficiently disabled to ever earn a taxable income at any useful level. There is no system known to man that can catch and tax these free riders. They are us and we are potentially one disaster away from being them. |