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Nov 1, 2016

Point of View: An Insane Way To Bring Sanity To Government

by Richard Morrison

Richard MorrisonImagine if the Canadian government were to issue forms that allowed taxpayers to direct their tax payments to specific ministries, departments, agencies and programs. For example, those who felt the defence department needed better equipment could put an X in the box marked Department of National Defence and direct all their tax money to that ministry. Similarly, those who felt native Canadians were being poorly served could mark the box next to Aboriginal Affairs and Northern Development Canada and direct their tax monies there. Environmentalists could allocate their tax dollars to Environment and Climate Change Canada, history buffs to Canadian Heritage and those concerned about helping veterans to Veterans Affairs. Taxpayers could be given the option of directing their entire payment to a single ministry, or to allocate parts of it across several departments.

Instead of indirect democracy, with voters electing politicians who decide how taxpayers’ money is spent, you’d have direct democracy, or at least a big step toward it. Ministries would act like businesses competing for taxpayer dollars. Waste would disappear as bureaucrats who rode in limousines and racked up huge restaurant and hotel bills would jeopardize the future flow of revenue to their departments.

Like businesses, federal ministries could appeal to taxpayers by advertising, while the tax package itself could come with a colourfully illustrated catalogue, with each ministry touting its accomplishments. Encouraging taxpayers to direct their dollars to specific departments would create thousands of new jobs in the marketing industry.

For taxpayers, deciding where to direct their tax money would be a bit like picking a charity to support. A basic directive tax form would list each of the federal government’s 35 main government ministries, while a more detailed form would allow taxpayers to direct their tax payment to specific agencies, councils, boards, commissions and tribunals.

Tax returns would be more complicated, but since they could control where their tax dollars went, taxpayers would be less motivated to try to under-report or conceal income. At the same time, government accountability would improve as taxpayers who contributed to a specific ministry would follow “their” department as closely as shareholders would follow a stock they owned. While it might be a bit far-fetched to imagine a ministry holding annual meetings and webcasting quarterly conference calls, closer scrutiny of government is never a bad idea.

Politicians themselves would play more ceremonial roles, hosting state dinners, signing international trade deals and declaring war on other countries, which would at best be a part-time job.

As far as I can tell, no jurisdiction has allowed taxpayers to direct their payments. Canadian provinces and U.S. states allow Catholics to send their tax dollars to separate school boards, many charities allow donors to direct their contributions to specific programs (the United Way’s agencies have specific designation policies allowing this), and some hospitals let donors support certain departments, but that’s as far as it goes.

Politicians, lobbyists, bureaucrats and civil servants will no doubt dismiss such taxpayer empowerment concepts as outright insanity and will raise a variety of arguments why it won’t work. For example:

Taxpayers are too stupid to direct where to send their money.

“The best argument against democracy is a five-minute conversation with the average voter,” Winston Churchill was (wrongly) quoted as saying. Stupid as they are, those who choose not to direct their taxes could simply file a return as they do now. Those who opt to allocate would likely do at least a little research into where they wanted their money to go.

The wealthy will have a disproportionate influence over government policy.

Since the wealthy pay the most taxes, they could support specific projects that benefit businesses they own. Such conflicts could be kept to a minimum by simply requiring each department to name the individual taxpayers who helped fund it, and how much they contributed. Anonymous donors or numbered companies could not direct their tax payments to any specific ministry.

Corporations would have conflicts of interest if they can direct their taxes.

Corporations must act in the best interests of their shareholders, so given the opportunity to direct its taxes, a corporation would be expected to support only those ministries and departments from which it benefits the most. At first blush, this seems ripe for a conflict of interest, but since it would still be up to bureaucrats to direct the money to specific programs and projects, corporate influence would be blunted. Besides, given that a well-funded ministry would be able to improve enforcement of what might turn out to be onerous regulations, corporate directors might steer clear of ministries that oversee their industry. On the other hand, a corporation could improve its public image by allocating its taxes among departments that oversee popular causes.

Poor people will be worse off.

With little or no tax payments to direct, impoverished Canadians would have almost no influence on government policy. Or would they? Taxpayers who once benefited from programs such as welfare and job training may direct their tax dollars there. Corporations could improve their relations with the public by visibly supporting departments and programs that help the disadvantaged, including income-redistribution programs.

I am, of course, dreaming in technicolour. I first discussed the directed tax payments idea with a senior tax department official in 1993, and after he stopped laughing, he explained that the concept would essentially undermine democracy as we know it. Not that it matters, he said, since there was zero chance that politicians would agree to such an emasculating arrangement.

Technology has improved since then, however, and in a decade or two when the under-30 set finally looks up from their smartphones to notice what’s going on, the idea of directed taxes may not seem so far-fetched.

In its entry on participatory democracy, Wikipedia points out that “since so much information must be gathered for the overall decision-making process to succeed, technology may provide important forces leading to the type of empowerments needed for participatory models.”

Richard Morrison, CIM, former editor and investment columnist at the Financial Post