17.1 Tax rates
There are two tax rates. One funds public services. The other funds the Universal Basic Income, redistributing wealth from rich to poor.
Section 1 of Article III: Constants defines the general constants, including these two tax rates:
Constant Value Description \(R_{\mathrm{svc}}\) 0.30 The fraction of each tax-inclusive monetary payment allocated as consumption tax dedicated to funding public services. \(R_{\mathrm{ubi}}\) 0.20 The fraction of each tax-inclusive monetary payment allocated as consumption tax dedicated to funding the Universal Basic Income (UBI). This establishes the degree of redistribution from higher‑consumption to lower‑consumption citizens.
At first glance, \(R_{\mathrm{svc}}\) seems to set the balance between the free market and public provision. Every good and service is ultimately shaped by profit-and-loss considerations. In truth, this rate defines something deeper: the balance between consumers acting independently in a conventional free market, versus acting together, more powerfully, as a unionised collective. Through contracts and taxation, they decide what services they want collectively, and pay for them collectively.
The extreme case: a fully tax-mediated market
Consider the extreme limiting case in which the tax-inclusive public-service rate is 100% and there is no redistribution through UBI:
\[ R_{\mathrm{svc}}=1, \qquad R_{\mathrm{ubi}}=0. \]
This is a thought experiment, not the rate adopted by the Constitution. It initially appears impossible. When a consumer pays for a Product, the producer receives none of that particular payment; all of it enters the public-service funding system according to tax choice. It seems that prices, profit, private production, and the market itself must disappear.
Surprisingly, that conclusion does not follow. Private operators can still compete for public-service contracts to supply the Products consumers want. Contracts can pay an operator an agreed price per item or unit of service, even though the payment is channelled through tax allocation rather than transferred directly from the particular consumer. Competing operators still own capital, employ workers, purchase inputs, propose prices, earn profits, bear losses, and fail when they cannot provide sufficient value. Inferior Products and inefficient producers can still be displaced by better ones.
The 100% rate applies only to final consumption. Intermediate goods, capital goods, and labour supplied as inputs to production remain untaxed. They continue to be exchanged between private parties at prices formed by supply and demand. Producers can therefore compare the real prices of alternative factors of production, including their labour and supply-chain costs. The market prices required for economic calculation have not been abolished.
The boundary is determined by economic use, not by the physical kind of Product. A car bought by a person for their own use is final consumption, whereas a car bought by a vehicle-hire company is a productive input and is untaxed. The same is true of many Products commonly regarded as consumer goods when they are instead used by a business. Thus even at the 100% limit, tax choice mediates final demand while the factors of production operate through an unregulated free market. Dispersed knowledge within the supply chain is coordinated through actual prices, so the 100% consumption-tax rate does not create the knowledge and calculation failures associated with central planning of production.
Currency can also continue to circulate. Service operators receive existing currency from the tax pool and use it to pay workers, suppliers, and investors. Those recipients spend currency on consumption, whereupon it returns to the public-service pool and funds operators again. With a fixed money supply and fixed tax rate, this circular flow need not be monetarily unstable merely because every final-consumption payment passes through tax choice.
Nor must this become conventional central planning. The State does not decide what should be produced, select favoured industries, own the means of production, or direct firms. Taxpayers provide the demand signal through tax choice, while private operators compete through contracts under profit and loss. The NDP continues to prohibit the State from privileging particular people or classes, and its other constitutional limits continue to protect property, voluntary production, competition, and freedom from discretionary regulation. The State remains a highly constrained mechanism for collecting and routing payments rather than an economic planner.
This does not show that a 100% rate would be desirable. Separating consumption from direct payment could weaken marginal price signals, encourage excessive use, make rationing more important, and require an enormous range of public-service contracts. It is doubtful that tax choice and contract prices would convey information as effectively as direct purchases across an entire economy. The important and thought-provoking result is narrower: a 100% public-service tax does not logically eliminate private ownership, market competition among producers, profit and loss, or monetary stability. The extreme may be capable of operating, even though there are strong reasons not to choose it.
Collectivism for consumers, individualism for producers
The extreme case reveals the wider principle described in Bridging capitalists and socialists: socialising consumption does not require socialising production. Capitalism and socialism are usually presented as indivisible and opposing packages. Private ownership, competition, and profit are placed on one side; collective funding, universal provision, and social responsibility on the other. Tax choice separates characteristics which need not be opposites.
Traditional socialism directs collective power at producers. It seeks to control ownership, investment, employment, prices, profits, or the organisation of production. This is paradoxical because workers are themselves producers, and entrepreneurs perform some of the most consequential work in the economy: discovering opportunities, risking capital, organising people and resources, choosing between uncertain plans, and accepting the cost of failure. They also tend to work extremely hard, especially while establishing an enterprise, when long hours and personal responsibility are combined with a high probability of failure. Political direction of production restricts the very productive activity on which workers and consumers depend.
VoTa applies collective power on the other side of the exchange. Consumers combine part of their purchasing power through taxation and individually direct it through tax choice. They express which public outcomes they want, while leaving private producers free to discover how best to provide them. Collective demand does not become collective command over production.
Entrepreneurs will often be the people who identify an unmet need and submit a proposal for a new public service, hoping to win its contract as the provider best able to deliver it. They remain the creative initiators, but they cannot make a proposal succeed merely by persuading an official or obtaining political favour. They must appeal to consumers, who decide whether the proposed service deserves their support and continuing tax allocations. Many individual choices thereby combine into formidable collective purchasing power, while entrepreneurs compete for that power by offering consumers better services.
At the 100% limit, collectivism among consumers is maximised: all final-consumption payments become collective purchasing power directed through tax choice. Yet nothing has been surrendered on the producer side. Producers remain privately owned, unregulated, and competitive, operating under profit and loss. Entrepreneurs remain free to innovate, organise production, invest, and compete for the collectively expressed demand. The NDP prevents the State from turning control of the payment mechanism into authority to favour firms, punish classes, direct industries, or impose a political plan. The State routes collective purchasing power but does not acquire the right to govern peaceful production.
VoTa is therefore not merely a compromise in which capitalists and socialists each surrender half of what they value. It offers individualism to producers and collectivism to consumers at the same time. Capitalists retain private property, entrepreneurship, competition, and profit and loss. Socialists obtain collective funding and the capacity for universal public provision. The combination commonly assumed impossible becomes coherent once consumption and production are treated as distinct domains.
Determining these rates through democracy is problematic. Adam Smith’s “invisible hand” shows how self‑interest in markets can unintentionally advance society’s welfare. But that principle does not extend to voting on tax rates. When citizens vote from short‑term self‑interest, the results are extreme. Those burdened by taxation push for rates near 0%. Those who benefit from redistribution push for rates near 100%. If the majority believes it benefits from higher taxation, democracy may drive tax rates beyond economically beneficial levels.
The rejected median-rate approach
An earlier design allowed every citizen to nominate statewide tax rates and used the median nominated values. A median is resistant to a small number of extreme votes, but it remains a form of majority rule. If more than half of voters favour a dangerously high rate, the median faithfully produces a dangerously high rate. Mathematical resistance to outliers is not protection against a short-sighted majority.
The median also hides the connection between a person's preferred benefits and their full cost. Each group can vote for a higher rate to fund the UBI or services it values while expecting the burden to be dispersed across all consumers. Many groups can make the same calculation at once. Unlike tax choice within a fixed pool, voting for more total tax does not require a voter to identify which other service should receive less.
Immediate benefits and delayed costs
The benefits of a higher rate appear quickly and visibly: larger tax pools, more public-service contracts, more employment by their operators, and greater distributions. The damage develops more slowly. Higher consumption prices cause marginal exchanges to cease, reduce demand for private production, encourage avoidance and informal exchange, deter investment, and make residence or citizenship less attractive to productive people. Voters can therefore enjoy or observe the benefit before they can measure the economic activity which never occurs.
By the time the damage is visible, households, workers, and providers may have organised themselves around the additional taxpayer funding. They then have a strong immediate reason to oppose a reduction even if maintaining the rate further weakens the economy. Democratic rate-setting can consequently create two reinforcing tendencies:
higher tax rate
→ more dependence on tax-funded provision
→ more support for a high tax rate
higher tax rate
→ less private exchange and production
→ a weaker tax base
The constituency seeking taxpayer funding can grow while the productive activity supporting it contracts. A high statutory rate then need not produce proportionately high revenue. Beyond some point it can damage production and voluntary exchange so severely that the public services and UBI depending on the tax base also become unsustainable.
Why tax allocation is different
These objections do not apply in the same way to tax choice. Tax choice democratises the composition of public spending within a limited pool. More funding for one service leaves less available for another service or for the UBI, so preferences encounter an immediate opportunity cost. Services and competing ideas must displace one another rather than obtaining a larger pool through majority support.
Statewide rates are constitutional limits
VoTa therefore rejects routine voting, including median-value voting, on statewide tax rates. The rates are fixed in the Constitution as stable limits on the total transfer from independent consumption to collective provision and the UBI. Changing those limits requires constitutional change rather than a recurring vote driven by current beneficiaries or economic conditions.
No particular constitutional rate can be proved optimal for every future circumstance. Fixing the rates instead recognises that predictability and resistance to destructive political feedback are more important than continually adjusting them to current opinion. Democracy determines how the limited public-service pool is used; it does not determine how large that pool may become.