Four Uses For Personal Tax Assets

Any stream of financial payments can be turned into a financial asset, by selling a transferable right to receive that stream of payments. For example, from the stream of tax payments that each individual citizen pays to the government each year, we could create “personal tax assets” (PTAs). These are rights to have part of this stream of money diverted to you. (We need not bundle such assets with any control rights over the target taxpayer, how much they owe, or how their taxes are collected.)

Substitute For Bonds - From the point of view of a government, selling PTAs can be a substitute for borrowing money (i.e., selling bonds). Both processes convert future revenue into current revenue, which is useful when governments don’t have enough current revenue to cover current expenses. However, as bonds seem a bit simpler than PTAs, we’d want to see other valuable uses of PTAs, to compensate for the extra trouble. I see three more beneficial applications.

Cut Tax Rates - A target taxpayer who buys their own PTAs pays now to lower their future tax payments, and thus in effect lowers their future tax rates. As taxes on work, investment, and consumption discourage such things, a taxpayer with lower tax rates is thus less discouraged from such things. As PTAs are worth more when held by their target taxpayer than when held by others, both the government and that taxpayer can benefit from arranging for such a transfer.

Tax Career Agents - If a target taxpayer approves, the government might auction off (all or part of) their PTAs to a single buyer. This auction winner would then have incentives to advise and promote that target taxpayer re school and career choices. (Incentives that their government has now, but fails to act on.) This “tax career agent” would typically be the sufficiently-capitalized actor who expects to be best able to both figure out what advice and promotions to suggest, and also to get this target taxpayer to take those suggestions seriously. When a target taxpayer makes it clear that they are more willing to listen someone else, their current agent then acquires an incentive to sell their PTAs to that someone else.

Fertility Incentives - We have many reasons to subsidize parents having kids, including innovation, scale economies, kids liking their lives, and an increased influence over future civilization. But the reason that is clearest and easier to prove is that governments commit each new kid to paying their “share” of current and future government debt. (For example, while US debt per citizen is ~$100K in explicit bonds, in terms of total unfunded liabilities I find published estimates of $300K, $440K, and $730K per citizen.)

Governments should thus be willing to pay up to such amounts, on average, to induce each new kid citizen. They don’t even need to pay for this themselves; they can just issue more debt to cover this cost, debt that investors willing to buy current debt should also be willing to buy.

However, because different kids will end up paying different amounts in taxes, incentives may be off if we just pay the same dollar amount for any kid. That could induce too many kids who pay few taxes, and too few kids who a lot of taxes. Relative to the goal of inducing future tax payments to cover government debt, we’d do better to pay parents according to a closer estimate of each kid’s future tax payments. 

Personal tax assets seem ideal for this purpose. Just give the parents of each kid PTAs for the same fixed percentage of that kid’s future tax payments. Parents can then sell such assets to investors to cover parenting expenses. This approach gives parents incentives not only to have kids, but also to choose and raise kids who are likely to pay more in taxes later. Set the fixed PTA percentage according to government debt per person, chances debt will be repaid, and fraction of kids induced by this incentive. 

When exactly should governments pay parents these PTAs for their kids? The simple safe option is to wait until kids reach adulthood and start to actually pay taxes. But governments may choose to hand out at least some PTAs earlier than this, to make it a bit easier for parents to raise revenue to cover parenting expenses.