Sell Tax Rights To Make Agents
Assume the federal government is owed X% of a certain person’s future wages w(t). Or some fixed function F(w(t)). You might not think the government entitled to such income taxes, but you gotta admit the odds of changing this situation anytime soon look slim.
I propose that the government auction off this right to collect these income taxes. Ideally at birth, if not sooner. Government could use the auction revenue to pay off part of its government debt, and thus in effect convert one kind of debt into another. So the government’s expected tax revenue need not suffer.
This selling-tax-rights action would create a job agent out of the auction winner. Someone with an incentive to try to help and promote this taxpayer, to get them to earn more money, and thus to pay more taxes to their agent. The auction would find the person or organization who thinks they can do this job best, and if they actually succeed then they would benefit. And if this system works on average then the government also gains in expectation at auction time.
This system would probably also benefit the taxpayer themselves, as we aren’t giving the agent any powers but persuasion. The agent can suggest options and strategies to the taxpayer, and can recommend the taxpayer to others. But the taxpayer and others can ignore any of this advice, and can refuse to divulge any info to this agent.
The agent could at any time sell their agency role to anyone else who thought they could do a better job. This might be to the parents or schools of children. For adults, it might be to an employer. Or adults might buy the rights to become their own agent, maybe taking out loans to pay for that. As long as these various agents do a better job advising and promoting the taxpayer than would the government, this system becomes a net win for all parties, at least in expectation.
You might worry that an agent would threaten their taxpayer, saying that unless the taxpayer does certain unpleasant things the agent will refuse to advise or promote them, and thus somehow trash their career. This seems an unlikely problem to me, but if this issue becomes a dealbreaker, I know how to use conditional speculative markets to solve it, at the cost of a bit more mechanism complexity.
You might worry that an agent would be mistaken about their ability to help, and thus harm their taxpayer in the process of hurting themselves. Thinking you were protecting both parties, you might regulate who is allowed to become an agent, and what agents are allowed to do. I don’t recommend this path, but I admit that only severe regulation might kill off most benefits of this system.
If the taxpayer dies, then of course their agent stops getting paid. So agents will want to advise on health, in addition to careers. And on anything that promotes health. For example, if getting happily married helps careers, the agent will want to advise on that. If a taxpayer emigrates, their target nation might not accept this taxation transfer system, in which case the agent would also lose. But this is a standard reason nations have given for not allowing citizens to emigrate; as the world hasn’t accepted that argument for nations, I don’t see why they’d accept it for agents.
Once the rights to tax revenue is sold to agents, governments would lose a direct incentive to provide services to citizens in order to increase citizen income. But governments would retain the incentive to create the appearance of high future income, to induce higher auction prices. And modern governments mainly choose service levels to citizens based on the threats and actions of voters, not based on government calculations on tax revenue.
What about non-federal governments? Well they could just collect their taxes as usual. Or their taxes could also be auctioned off at birth, and then the federal government could over time reimburse the jurisdiction where the taxpayer resides for their lost taxes. This second approach seems preferable, as it creates stronger agent incentives.
And that’s my proposal. Looks like a clear win-win for everyone. What don’t you like?
Added 10p: Please note that I did not propose to give agents control over how taxes are collected. This is not about “tax-farming.” No need or reason to change the tax collection process for this system. The IRS collects taxes because it is assigned to do so, not because the rest of the government gets to spend the money right then. I collects taxes nearly the same no matter who gets the tax revenue or when.
Yes, agents would want to lobby for higher taxes, while taxpayers want to lobby for lower taxes. Taxpayers have more votes, however, to influence policy, and their long term incentives are for good tax levels. Note that a similar problem is that governments can print money to avoid having to pay their debts, yet this only rarely actually happens. Just as governments are afraid to scare bondholders, since that raises the interest rates they pay, governments should be afraid to scare tax auction bidders, as that would lower their auction revenue.
There is a reasonable concern that taxpayers might try to commit to trash their lives, or to emigrate, until they are sold their agent rights. Or until a secret ally can buy their rights. As with insurance fraud, it probably works sufficiently well to call this behavior fraud, criminalize it with large penalties, and offer rewards to those who report violations. And we don’t have to let emigrants who stop paying taxes ever return.
Many offer the generic works-against-anything argument “We can’t allow a conflict of interest to exist between two groups, as the bad side might lobby harder”. Here the groups are agents and taxpayers re tax levels.
If there any doubts re if individual taxpayers would benefit, let’s only auction the rights for a random half (or tenth) of the population. That would also reduce problems with changing enforcement and revenue patterns. And maybe also only for newborns whose parents approve.
Added 20Mar: Another solution to the fiscal discipline problem is to put the auction revenue into a separate trust fund like we do with social security payments. Also, see my next post for a poll on this topic.
Added 21Mar: Here is a related proposal. Also, maybe once a year the government can include info on how to contact your agent in the mail they send you about your taxes. See more comments on the idea here.
Added 22Mar: Most who dislike seem mainly offended by their not being able to pick their agent. But if the relation is much more productive in that case, then target-picked agents should be able to win auctions, and get other agents to sell the role to them.
Added 24Mar: We should also note that this would allow ordinary people to invest more easily in, and diversify more over, a whole new class of assets. That should be worth something in terms of reducing risk for any given average return.
Added 30Jun2021: I tried to write a easier clearer presentation of the idea.