The idea of a “voluntary” tax system that is truly voluntary isn’t a huge jump from where we are today. Not only is such a thing feasible: elements of voluntary taxation are already being implemented in various ways in our country and around the world.

The following approaches to voluntary taxation are sorted in order of increasing power in the hands of the people.

 

Tax Expenditure Check-off – Selecting Government Programs and Agencies

The Tax Expenditure Check-off allows us to choose which government agencies, and even which government programs, our tax dollars go to. It does not affect the total tax paid.

Specifically, a Tax Expenditure Checkoff allows taxpayers to provide more or less money to various agencies or programs using sliders or check boxes on their tax returns.

Such a system could cover multiple government programs, or just one. Even a single check-off could allow taxpayers simply to “opt out” of funding a particular government program or agency that they believe to be wasteful, corrupt, harmful or simply doing less good than others. A comprehensive check-off schedule would allow people to hold all government agencies directly accountable and to ensure that government spending directly reflects their will.

It’s the people’s purse, and the people pull the strings.

A small Federal tax-expenditure check-off program already exists. The FEC $3 Checkoff allows taxpayers to divert some of their tax dollars to the “Presidential Election Campaign Fund”, which provides resources to Presidential candidates and national party committees for use in Presidential elections.

 

“Hometown Tax” – Rewarding More Effective Jurisdictions

The Furusato Nouzei (故郷税) in Japan is the world’s first “hometown tax”. Begun in 2008 to help revitalize local economies, the Furusato Nouzei offers Japanese citizens a tax deduction that is almost large enough to offset donations to local and regional governments and programs. It allows Japanese citizens to redirect up to 45% of their tax dollars to any level of the Japanese government. This is likely to be – but does not have to be – the taxpayer’s hometown.

The system has seen a steady rise in its popularity since it was first introduced in 2008, taking in over 13 Billion Yen in 2012. According to Japan’s Internal Affairs and Communications Ministry, the annual number of donors declared eligible for tax deductions (from their national tax bill as a result of donating to local jurisdictions) more than tripled in its first four years, and donations through the system surged in 2011, being sent to the Tohoku region after it was ravaged by the March 11 quake, tsunami and reactor meltdowns, reflecting the power of a system that allows taxpayers to send  tax dollars directly to where they are clearly most needed.

The United States also has numerous layers of government – federal, state, county, city … even wards and districts. Applying a more general version of this “hometown here” tax here would enable taxpayers to choose which level of government to send their tax dollars to, allowing them, for example, to send Federal tax dollars to their state or even city government in response to a local natural disaster.

 

Tax Credits – Giving Our Tax Dollars to Non-governmental Entities

A tax credit provides a very simple way for us to choose where our tax dollars go.  A tax credit is much more than a tax deduction. Whereas a tax deduction only reduces the amount of your taxable income, a tax credit reduces the amount you owe to the government by the exact amount you give to non-governmental entities.

Some states already allow taxpayers to redirect their tax dollars to nonprofit organizations that provide services that the government does not provide, or that provide services more effectively than do government agencies. Tax credits for educational purposes are especially common. States that already give tax credits include Arizona, Arkansas, Colorado, Georgia, Idaho, Iowa, Kansas, Maryland, Missouri, Montana, New Hampshire, North Dakota, Oregon, and Virginia. In 2014 for example, 105,000 Arizona taxpayers took advantage of Arizona’s charitable credit, and sent $28.2 million to deserving non-profits in their state, rather than to the state government.

Some examples:

Income tax example: In Georgia, corporations divert tax dollars into educational programs for children from less well-off homes. The program has resulted in many disadvantaged children getting an education that has helped to lift them out of poverty, and that they would otherwise have had no access to. The program is so popular that the cap on the number of dollars is reached in the first day of the year in which the program is opened.

Sales tax example: a liquor store could give its collected sales tax (including any “sin taxes” levied specifically on alcohol, for example) directly to Alcoholics Anonymous or a hospital that treats liver diseases, and enjoy a tax credit for the same. A casino might donate its sales taxes to Gamblers Anonymous – or just to any organization that benefits the local community.

 

Voluntary Contributions – Pay More If You Want More

The simplest form of voluntary taxation involves the use of our tax return to give or not to give to government programs that even the government identifies as non-essential, or to non-profit organizations whose work the government promotes.

Dozens of states have a section on the state income tax form titled “voluntary contributions”. In 1977, for example, Colorado became the first state in the country to allow a taxpayer to “check-off” a voluntary contribution to a state program.  Today, almost every state in the country has a check-off program.  Each year, U.S. taxpayers contribute tens of millions of dollars to a diverse range of programs. The most common support wildlife preservation, political campaigns, child abuse and neglect prevention, and the U.S. Olympic committees.  Michigan and Arizona currently offer extensive voluntary contribution schedules. In Michigan, for example, the Military Family Relief Fund provides grants to qualifying families of military members in either the Michigan National Guard or the Reserves who are called to active duty.

Voluntary contributions give governments the option to ask taxpayers for money for emergency or specific projects without imposing a tax increase or levy. In not requiring any payment, this approach maximizes the choice that taxpayers have in funding society.

 

A Society Is Limited Only by Its Imagination

Whereas the above voluntary taxation schemes have already been implemented, there are others that are yet to be tried. They include such schemes as Payment in Kind (or Doing the Government’s Job for It), Cutting Out the Middle Man, and lotteries.