Monday, January 17, 2022

Losers Don't Pay Taxes

This is just a rambling thought experiment. Feel free to ignore as it probably has vast shortcomings I have not considered in the admittedly short amount of time I have spent on it.

What if we instituted a rule via Constitutional amendment that the voters for a losing Presidential candidate in the general election do not have to pay federal income taxes for the term of office for which their loser was running? Suppose further that this amendment was so firmly established that there would be no question of it being followed (unlike so much of the Constitution) and no question of it being permanent for the foreseeable future.

I can think of lots and lots of problems with this as I'm sure you can too. A chief one is that Congress and not the executive branch determines taxes. Not to sideline those, but let's jump straight into some game theory.

What might some implications be?
  • Any rational potential voter would probably chose to vote given the prospect of tax avoidance.
  • Those votes would likely gravitate at first to candidates who looked very unlikely to win.
  • This seems to help third parties get on to ballots and garner significant vote share.
  • Knowing that everyone else is pursuing this strategy, voters likely would be reluctant to throw their vote for scary candidates. Even if they realize their vote will not affect the outcome of the election (spoiler alert: your vote doesn't matter mathematically), if presented with two similar candidates where one was slightly less objectionable than the other but both rather unlikely to win, the better of the two would tend to get the vote.
  • Candidates would know all this as well. That should push them to be slightly more objectionable at the margin. However, power still matters and is desired. So they would also have an incentive to try to win if they thought they could win. Now what would make them very desirable to getting votes so as to win? hmmm? Promises for very low taxes of course.
  • Could they or would they promise no taxes? I think this is unlikely as everyone knows that there have to be some taxes if there is to be some government spending. What about funding spending exclusively through debt, which is promises of either future taxes or future inflation? While this could be a workaround, it would have problems. The threat of inflation harms current voters as once inflation is suspected and to the degree it is suspected, it arrives immediately, or at least eventually. Future taxes might come soon enough to affect current voters and will likely affect their offspring, a group for which voters care.
  • This is starting to sound like a powerful tool to restrain government. Candidates are encouraged to campaign on small government so as to allow for low taxes. Voters are encouraged to support candidates who pursue small government. It also seems to promote experimentation as candidates are encouraged to be a bit wacky but not too wacky for fear (by voters) that they would actually get elected, and voters are incentivized to vote for marginally more wacky candidates (more than current but less than the wackiest). Here wacky means stuff like: drug legalization, troop withdrawal/de-escalation, privatization, deregulation, etc. Consider me wacky, btw.
  • I would fear it would degenerate into some suboptimal game, though, like where we all pretend to pursue small government and then don't actually do it leading to a need for higher future taxes. This would create a ratchet effect making the next election a competition between greater liars offering lesser improvements. Another BIG problem relates to the issue raised and promptly ignored at the top: Congress. Would Congress be emboldened to spend more? An opposing-party Congress as compared to the President seems likely to. This could not be fixed by changing the amendment to instead be a voter for a losing party in the next Congress since we don't vote for one Congressional position. Would the rule need to be it applies only to straight-party voters? If we went down that road, perhaps we would need another amendment limiting all elections to just two parties--the default situation we have now anyway. Lock in the Democrats and Republicans granting them the oligopoly of two. This might work making them compete along the tax dimension axis almost exclusively with all other policy subservient to it. Now we might be back to strong incentives for small government. Yet another suboptimal result might be one party in each election is always aiming to be the losing party and the other party tacitly agrees to be the winning party. Would this still give a small-government outcome? Maybe. Voters can switch who they vote for, but if there is strong lock-in on policy, they may not be so quick to change their votes. Where does social desirability bias and virtue signaling come it?
  • Who knows? I do like the integrity of only the voters who supported people in power have to pay for the actions of those people. 


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