Assignment
WHY POLITICIANS WONT CUT TAXES
Since the passage of California's Proposition 13, similar proposals are appearing in many other states. Their proponents are confident that the current levels of taxes and government expenditures are too high and that if given a chance, people will vote to reduce them. Assuming this is true, one question cries out to be answered. Why won't legislators-who, after all, are representatives of the people and certainly want to be reelected-cut taxes and spending themselves if that is what the majority of voters want? Although a number of legislators have shown interest in cutting taxes and/or spending since the passage of Proposition 13 (or at least in restricting their growth), their proposals are not nearly as radical as either Prop 13 or proposals now before the voters in other states.
Gordon Tullock is Professor of Economics, Center for Public Choice, Virginia Polytechnic Institute. He is coauthor of The Calculus of Consent.
Referenda serve to put a brake on the tendency of legislators to overtax and overspend. The important and difficult problem is to keep the two in balance.
VOTERS IGNORE GOVERNMENT
The real point of representative government is to allow individual voters to pay little attention to their government. They elect representatives, who go off to the state or national capital and take care of government business without referring the details back to their constituents. If individual voters are sensible, they will pay attention only to those few bills that affect them greatly. For example, consider a hypothetical bill making complex changes in the organization of higher education. The effects of this bill on the quality of education are unclear-but of course its proponents say they are all positive. The exact consequences, on the other hand, will increase taxes for almost everybody in the state by $ 1 a year, and raise college faculty salaries by $500. Now, the average voter who spent the time to understand such a bill would eventually learn it would cost him $1. The expenditure in time and effort of becoming informed, therefore, would greatly exceed the loss he would suffer. This is especially true since there is little he can do to influence the outcome. College professors, on the other hand, have a lot riding on the bill and have great incentive to spend time understanding it and attempting to influence its outcome. Moreover, they already know a good deal about education, and hence it is easier for them to figure out actual results. For these reasons, professors will support the bill, probably in a very organized fashion, and average citizens, knowing nothing about it, will ignore it. It makes no sense for the average citizen to spend long hours studying a bill that will affect him only slightly. Legislators know this is how people behave. They know that by supporting the bill they will get votes from professors who will know how each legislator voted and remember it until the next election. On the other hand, voting for the bill will probably have no effect on the support they get from ordinary citizens-whose "injuries" are so small that they won't notice.
REAL OBJECTIVES HIDDEN
Of course, for the bill to pass, some camouflage is necessary. A straightforward $1 tax on every citizen in order to give professors $500 each would be too blatant: everybody could understand that. Therefore, although the bill may do almost nothing except transfer funds from taxpayers to professors, camouflage-in the form of appeals to the "public interest"-must be added to get it through. Above all, it must be complex enough that the average voter won't realize its real objective. Because bills can't simply tax one group in order to pay another, most such bills claim to benefit the general public; and, of course, many do, even if they are not worth the cost. Still, the majority of voters would oppose most of these bills if they understood them. A second reason why legislatures are attracted to bills that an informed public would oppose is that almost everyone who knows about the subject matter may benefit from them. The "educational establishment," for example, contains within it almost everyone who is in any sense an expert on higher education. Therefore most technical advice on public education is apt to come from this group. They are also most likely to suggest new legislation, poke holes in other proposals, and so on. In general, they will benefit from increasing appropriations for higher education. Potential beneficiaries of much legislation are not only the major source of information, they are also biased in favor of greater and greater expenditures- and hence higher taxes. Not only will they probably vote for the legislator who favors such appropriations, they will also provide him supporting technical advice, emphasizing the many desirable effects that would result. Therefore, even if the average citizen became interested enough to study a given proposition and to try to find out the real truth about it, he would have a very difficult time because almost everything he would find in print would be favorable to it. The same would be true of most "experts" he consulted. Now not only does the typical voter have weak motives for becoming well informed, most channels of information are in the hands of people who have an important stake in the outcome. In many ways this last problem is at least as severe for the legislator as for the voter. Any legislator who wants to reduce the education budget must either plan the reduction himself or turn to experts for advice. Since he doesn't know much about education, doing it himself is apt to produce a poor bill; and experts will almost certainly want to sabotage the cut. On the other hand, legislators who want to increase appropriations will receive enthusiastic expert cooperation.
COUNTERVAILING TENDENCY TO UNDERTAX
While all of the above indicates that legislatures will tend to overspend and overtax, some countervailing reasons exist that suggest legislators might selectively under tax instead. But although they are similar, the theoretical reasons indicating selective under taxing do not fit the real world nearly as well as those for overspending. Consider our legislator who is seeking reelection and who feels that giving a small present to a few of his constituents-say, $500 to each college professor in his district-will help. This he could do just as easily by reducing their taxes as by supporting an educational appropriations bill. In fact, while citizens of a given legislative district. benefit when a "pork barrel" project is located in their district, they benefit more if they are given a tax reduction of the same cost to the treasury. Further, the ignorance of the general public about special tax privileges should make tax breaks as easy to enact as appropriations bills. After all, payoff in the form of a specialized tax reduction to a small group, paid for by a slight reduction in public services spread across the state would not be something the average voter should devote a lot of time studying-because the cost to him of becoming informed exceeds any possible benefit. On the other hand, college professors certainly have an incentive to become well informed about the proposed tax break. Thus, we might expect legislators to benefit small groups partly by selective tax reductions. Of course, these tax breaks do exist. Every tax code in the democratic world is full of special exemptions for influential groups. One of the advantages in the use of referenda is that they tend to eliminate these special privileges as well as the large number of special benefits conferred in the appropriation process. It seems to be true, however, that the total of special tax benefits is considerably smaller than the total of special expenditure benefits. There are several reasons for this. The first is that legislators using appropriations can deal both with occupational groups-say, all professors in the state-and with geographical groups. For example, a legislator can arrange to have something built in his district. With the tax reduction process, however, he is confined to the occupational group. It would be possible to lower taxes for all professors, but in general it would be unconstitutional to lower them for his constituents only. There is another difference between these two ways of dealing with small groups, and this has to do with the greater availability of information in the case of expenditures. Such information is normally provided by the sizable bureaucracies that benefit from expenditure increases, and that therefore are well informed and enthusiastic about them. There is no reasonably large bureaucracy in existence that would benefit from reduced expenditures. Even the Internal Revenue Service, which knows more about taxes than anyone else, normally benefits from tax increases rather than decreases. The same is true of the tax accountants and tax lawyers whose income depends on taxes being high enough that people find it worthwhile consulting them. In general, their total income increases every time taxes go up and decreases every time they go down. Finally, to pacify a small, well-informed, and excited group of voters, the tax route may not be as good because it is more open. That is, it is easier for people to figure out who benefits from reduced taxes, and by exactly how much, than it is for them to determine the beneficiaries of additional appropriations. Moreover, with selective tax reductions, benefits are in straightforward cash; it is harder to argue that these are motivated by the public interest than it is for many kinds of expenditures. For these reasons, pressure groups seem to have much more success getting benefits from expenditures than from tax exemptions.
REFERENDA AND THE NEED FOR BALANCE
Popular referenda can act as a restraint on the tendency of legislatures to overspend or selectively under tax, by marshalling the general taxpayer interest in limits. For the same reasons that it does not pay individual voters to inform themselves of individual taxing and spending bills, it is very sensible for them to understand and support general limitations, which, unlike individual bills, can have an important effect on their overall taxes. The value of referenda as a balancing force does not mean, of course, that referenda are the ideal form of government. If democracy becomes more direct, citizens will have to spend more time informing themselves about the issues that they, not their representatives, will be deciding. If they choose not to inform themselves, the resulting set of policies might be disastrous; this would be a high price to pay for the increased economy in government that rule by referendum ought to provide. Finally, a certain amount of horse trading between legislators protects intense minority interests. Since every citizen is sure to be in the minority on some issue, he or she may someday regret that issues are settled at the ballot box rather than in smoke-filled rooms. What citizens must decide, then, is not whether referenda should rule, but how much and when.
DISCUSSION
1. Do you believe that politicians have no incentive to cut taxes? What examples can you think of to dispute Tullock's claim?
2. If Proposition 13-type referenda are the only way to harness public desire to cut taxes, why have other states not passed similar laws?
3. What problems can you foresee if we try to run a large government by referenda? Are they better or worse than the "special interest group" domination of our present legislatures?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.