How big a budget do the people prefer?

• Author: Brubaker, Earl R.

Adherents of democratic political philosophies agree that the people's preferences are a vital ingredient for making rational public budgetary decisions. The claim by prominent analysts of public opinion, for example, that "now most Americans take for granted that citizens' preferences should be the chief determinant of policy-making" (Page and Shapiro 1992, 1) undoubtedly applies to budgetary matters. Tacit agreement on this proposition is evident in the work of economists generally and of experts in public, finance and public choice in particular. Laboring almost entirely independently of one another, pollsters and economic analysts in disparate ways have contributed substantially to our understanding of the role of individuals' preferences in public budgetary decision making. My purpose in this article is to show how integrating their insights can facilitate the elicitation of much more useful data describing such preferences.

Insights from Economic Analysis

Economic theorists have created well-defined normative models making clear that the public's demands for governmental programs are a vital factor in rational budgetary decisions. They have elaborated thoroughly the attributes of public goods that motivate individuals to misrepresent such demands.(1) Economists have labored valiantly with substantial promise of success to design theoretically sound schemes that provide strict material incentives for accurate disclosure of demands for public goods. Unfortunately, barriers to the practical application of such schemes to voluntary opinion surveys remain formidable. These approaches, though promising in some respects, have relied on distressingly complex combinations of arbitrary and special incentive taxes. Experimentalists have conducted numerous laboratory tests of alternative elicitation schemes and related behavioral hypotheses.(2) Analysts of public choice have thoroughly investigated how alternative collective-decision processes create rewards for overstating or understating preferences pertinent to public goods.(3) Other empirically oriented economists have devised and employed methods using aggregate data to estimate demands for public goods as expressed under existing institutions. Daniel Hewitt (1985), for example, estimated aggregate demands for national public goods by relating micro survey responses to tax rates and to aggregate (federal, state, and local) budgetary allocations. This approach admirably combines ostensibly disparate evidence. The results clearly depend, however, on the efficacy of the elicitation procedures employed in the surveys.

Insights from the Evolution of Budgetary Survey Questions

Pollsters of public opinion over the past several decades have conducted numerous sample surveys yielding actual measures of attitudes regarding governmental budgetary matters.(4) They have made substantial progress in identifying and dealing with important methodological issues, including unidimensionality, random error, cardinality, shape of response distributions, separability of issues, dissembling, context effects, and question wording (Krebs and Schmidt 1993; Page and Shapiro 1992, 27-31). Pollsters have demonstrated just how critically answers depend on the form, context, and subtle connotations of questions (Rasinski 1989; Roberts, Hite, and Bradley 1994; Weaver, Shapiro, and Jacobs 1995). Experts in designing survey research instruments have shown how the accumulated insights can improve practice (Fowler 1995).

A review of prominent surveys (see appendix A) clearly demonstrates substantial improvement in the wording of contextual materials and of questions on taxes and spending. Specifically, wording has evolved so as to attempt to elicit indications of the strength of preference and to help respondents focus on balancing personal costs against perceived benefits. Early polls asked separately about taxes and spending, and, hardly surprisingly, the public decisively tended to favor both lower taxes and maintenance of public services (see appendix A, paragraph 1). Perhaps quite reasonably, the respondents perceived ample potential for much more cost-effective use of the resources employed by governments (Ladd and others 1979). Subsequently pollsters asked for opinions about the general balance between taxes and government spending (see appendix A, paragraph 1, Q4). Finally, questions directed attention to the connection between government outlays and personal tax obligations (see appendix A, paragraph 2). Dramatic effects of alternative wording remain, nevertheless, as is evident from the data recorded in table 1. Those data show solid majorities both for "willing to pay higher taxes if you knew that all of the added taxes were spent on (category)" and for "willing to see a reduction in spending on (category) if you knew it would mean that you would pay lower taxes.(5)

Table 1: Willingness to Increase or Reduce Taxes and Spending How Willing Would You Be To: Pay higher taxes if you knew that all of the added taxes were spent on (category)? Category Percentage willing: Creating jobs 91 Education 90 Fighting crime 90 Fighting drug abuse 87 Health insurance reform 65 Social Security 81 Reducing the federal government's budget deficit 77 The environment 80 Homelessness 81 National defense 64 Welfare 47 See a reduction in spending on (category) if you knew it would mean that you would pay lower taxes? Category Percentage willing: Creating jobs 62 Education 51 Fighting crime 56 Fighting drug abuse 58 Health insurance reform 65 Social Security 60 Reducing the federal government's budget deficit 74 The environment 62 Homelessness 65 National defense 71 Welfare 73 Note: Percentage willing includes those who responded "very" or "somewhat." "Not sure" was the reply of 0%-3%.

Source: Hastings and Hastings 1996, 97-98.

Official Opportunities for Citizens to Express Opinions on Budgets

I turn now to examine government-sponsored opportunities for citizens to express directly their opinions about governmental budgets.

Federal income tax Form 1040 for 1996 contains information potentially useful for enabling expression of citizens' fiscal preferences, namely, pie charts showing major categories of federal income and outlays as percentages of the budget in 1995. Short verbal descriptions give somewhat more detailed information about the content of each category. This information could easily be converted to a form much more useful for supporting the citizenry's formation and expression of opinions about taxes and spending. Converting the base for the exhibited percentages from total federal income (or outlays) to national income would allow individuals to relate governmental outlays, albeit crudely, to their own tax burden. They would then be better prepared to assess the degree to which governmental budgets conform with their personal preferences.

Citizens' opportunities to influence directly budgetary choices at the federal level, even by comparison with opportunities to influence state and local governments, are, however, in general exceedingly constrained. Federal tax Form 1996 1040 (p. 31) makes clear the extremely limited fights of taxpayers. It states, "You have the fight to be treated fairly, professionally, promptly, and courteously by IRS employees.... To ensure that you always receive such treatment, you should know about the many rights you have at each step of the tax process." For elaboration, taxpayers may request Publication 1, Your Rights as a Taxpayer. Revision 5-96 of this publication contains not even a hint of any fights to earmark payments or to participate more directly in determining tax rates.

Some taxpayers affect their personal federal and state income tax obligations and total government revenues by their choices regarding payments or contributions that qualify as itemized deductions from gross taxable income. Such choices may be regarded at least partly as expression of preferences pertinent to avoiding taxes. The laws governing itemized deductions, however, are complex, and inferences about their implications for budgetary predilections are accordingly problematic.

Taxpayers' responses to quite limited opportunities to earmark payments, take tax credits, or make contributions at both the federal and California state levels similarly can provide little more than hints about budgetary inclinations. The very first item following taxpayer identification on federal Form 1996 1040 grants, for instance, the possibility of earmarking the grand sum of three dollars to the official presidential election campaign fund. The instructions helpfully remind taxpayers that "checking yes will not change your tax or reduce your refund." The instructions claim, further, that "this fund reduces candidates' dependence on large contributions from individuals and groups and places candidates on an equal financial footing in the general election." No mention is made of drawbacks.(6) Elsewhere Form 1040 also calls attention to the opportunity to make a (tax deductible) gift "to reduce the public debt."

Federal Form 1995 1040 (pp. 24-25) listed twenty potential tax credits, including outlays for "employer social security and medicare taxes on certain employee tips, . . . contributions to selected community development corporations, ... and Indian employment." California Form 1995 540 allowed contributions to thirteen special funds, including the California military museum, and up to twenty-five dollars to one of six prominent political parties.(7) How these credits and contributions were selected from a multitude of worthy causes to appear on income tax forms remains unexplained and obscure, to say the least.

California voters occasionally have had the option of expressing desires via bond acts and initiatives. For example, on California ballots for the general election of November 5, 1996, were three bond acts and an initiative to decide specific tax and spending issues.(8) According...