Employees Should Have The Right To Earmark Their Union Dues

Public employees are currently legally required to pay union dues. This might soon change if the Supreme Court overrules Abood v. Detroit Board of Education. In this story I’ll share both sides of the debate and propose a third option.

The opponents of Abood argue that forced-riding is a real problem…

Abood has caused serious infringement of people’s core constitutional rights for over 40 years. In that time, millions of public workers have had millions of dollars taken from them to further causes that they do not wish to support. — Brief For The Cato Institute And National Federation of Independent Business Small Business Legal Center As Amici Curiae In Support Of The Petition For Certiorari

The proponents of Abood argue that free-riding is a real problem…

In sum, it is well established that free riding follows from individual economic self-interest in the context of collective goods, even when everyone agrees that they benefit from those goods. If individuals are not required to contribute, many who undisputedly benefit will nevertheless withhold their contributions out of simple self-interest, and others will withhold their contributions to avoid being taken advantage of by the free riders. A committed core may be able to sustain itself and provide some amount of the collective good, but even if some contributors persevere, the amount of the collective good will be sub-optimal, and will tend to decrease further and further below the optimum as the contagion of free riding spreads, resulting in increasing exploitation of the dwindling contributors. — Brief Of Amici Curiae Economists And Professors Of Law And Economics In Support Of Respondents

The opponents and the proponents are both correct. Forced-riding and free-riding are both real problems.

However, there’s a simple solution to both problems. The Supreme Court should give employees the right to specify how their unions dues are spent. For example, Mark Janus could use his dues to help buy a new microwave for the employee breakroom. This way he would still be legally obligated to contribute to collective goods, but he would no longer be forced to fund functions that he fundamentally opposes.

Studies have shown that individual “earmarking” increases the amount of money that people are willing to contribute to collective goods (source1, source2). So if the Supreme Court chooses this third option, it could result in unions receiving even more money and employees enjoying even greater benefits.

It’s important for the Supreme Court to fully and deeply appreciate the potential ramifications of overruling Abood. The free-rider problem provides the only credible justification for compulsory taxation. And by “credible” I mean economic. If the Supreme Court were to rule against the legitimacy of the free-rider problem, it could potentially delegitimize compulsory taxation. It’s generally not the wisest decision to saw the very branch that you’re sitting on.

Here’s the most relevant passage from the most influential paper on the topic…

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul A. Samuelson, The Pure Theory of Public Expenditure

The premise is that the optimal supply of public goods depends on people’s true signals. The supply of public education won’t be optimal if people pretend that it is less important to them than it truly is. However, the only reason that people would have an incentive to be dishonest is if they had the option to spend their money on private goods rather than on public goods. If this option was eliminated, then people’s incentive to be dishonest would also be eliminated. This was the point made by a different Nobel economist…

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James M. Buchanan The Economics of Earmarked Taxes

Individual earmarking minimizes the problem of forced-riding…

One strand of this approach-initiated in Buchanan’s (1963) seminal paper-argues that the voter who might have approved a tax increase if it were earmarked for, say, environmental protection would oppose it under general fund financing because he or she may expect the increment to be allocated to an unfavored expenditure such as defense. Earmarked taxation then permits a more satisfactory expression of individual preferences. — Ranjit S. Teja, The Case for Earmarked Taxes

Also…

Individuals who have particularly negative feelings concerning a publicly provided good (e.g. Quakers on military expenditures, Prolifers on publicly funded abortions) have also at times suggested that they should be allowed to dissent by earmarking their taxes toward other public uses. — Marc Bilodeau, Tax-earmarking and separate school financing

Imagine if Netflix gave subscribers the opportunity to divide their subscription dollars however their wanted among all their favorite content. Would subscribers have any incentive to be dishonest? Nope. This is simply because they would not have the option to spend their subscription dollars on things like food or clothes. Subscribers would not have the option to spend their subscription dollars outside of Netflix. Therefore, how subscribers divided their limited dollars among the content would accurately reflect their true preferences. The result would be the optimal supply of collective goods.

Paul Samuelson and James Buchanan were both Nobel economists. Samuelson was a liberal economist while Buchanan was a libertarian economist. Despite their ideological differences, they both agreed on two very important points…

  1. The optimal supply of goods depends on people’s true preferences
  2. Free-riding results in the suboptimal supply of goods

Just like it would suboptimal for the private sector to supply meat if everybody was a vegetarian… it would be suboptimal for the public sector to supply war if everybody was a pacifist.

The point that Samuelson and Buchanan disagreed on is whether it’s necessary to give taxpayers the freedom to use their taxes to express their preferences for collective goods.

Free-riding and forced-riding are real problems that are not going to solve themselves. The free-riding problem isn’t going to magically vanish if the Supreme Court overrules Abood. Just like the forced-riding problem isn’t going to magically vanish if Abood is upheld. The only truly responsible option is for the Supreme Court to give employees the right to earmark their union dues.

If employees are given the right to earmark their dues, then this would substantially test the efficacy of individual earmarking. The outcome of this essential economic experiment would establish whether Samuelson or Buchanan had a better grasp on economic reality.

The truth will eventually be uncovered. I sincerely hope that the Supreme Court has the wisdom to discern the usefulness of uncovering the truth sooner rather than later.

I’ll conclude this story by sharing some relevant passages…

Historical

To constrain men to any thing inconvenient doth seem unreasonable. — John Locke, Second Treatise on Government

To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical. — Thomas Jefferson

To use the expedient of taxation as a stimulative to increased production, is to redouble the exertions of the community, for the sole purpose of multiplying its privations, rather than its enjoyments. For, if increased taxation be applied to the support of a complex, overgrown, and ostentatious internal administration, or of a superfluous and disproportionate military establishment, that may act as a drain of individual wealth, and of the flower of the national youth, and an aggressor upon the peace and happiness of domestic life, will not this be paying as dearly for a grievous public nuisance, as if it were a benefit of the first magnitude? — J.B. Say, A Treatise on Political Economy

It would seem to be a blatant injustice if someone should be forced to contribute towards the cost of some activity which does not further his interests or may even be diametrically opposed to them. — Knut Wicksell, A New Principle of Just Taxation

Unquestionably Mr. Spencer has the courage of his opinions; for in a chapter entitled The Right to Ignore the State he actually contends that the citizen may properly refuse to pay taxes, if at the same time he surrenders the advantages which State aid and State protection yield him! But how can he surrender them? In whatever way he maintains himself, he must make use of sundry appliances which are indirectly due to governmental organization; and he cannot avoid benefiting by the social order which government maintains. Even if he lives on a moor and makes shoes, he cannot sell his goods or buy the things he wants without using the road to the neighboring town, and profiting by the paving and perhaps the lighting when he gets there. And, though he may say he does not want police guardianship, yet, in keeping down footpads and burglars, the police necessarily protect him, whether he asks them or not. Surely it is manifest — as indeed Mr. Spencer himself elsewhere implies — that the citizen is so entangled in the organization of his society that he can neither escape the evils nor relinquish the benefits which come to him from it. — Herbert Spencer, An Autobiography

Modern

Indeed, the generally ignored problem of the forced rider, from who taxes are extracted but who receives no value in return, may be more severe than the problem of the free rider. — Richard Wagner, Public Finance

Taking an alternative point of view, however, we see a whole set of public goods that people are forced to consume, whether they like them or not, and this gives rise to the problem of the “forced rider”. When the consumer can choose to consume the good or not, no problem arises, since no consumer will choose voluntarily to consume an item which reduces individual well-being. — Jon T. Cauley, William Loehr, Todd Sandler, Public Goods and Public Policy

Over time, any individual in the community will expect [simple-majority voting] to produce unfavorable results in particular instances, results that run counter to his own preferences. Public-goods projects which he urgently desires may not be undertaken because a majority of his fellow citizens does not agree with his evaluation. Or, conversely, he may be required to contribute to the costs of projects that he considers to be worthless. — James Buchanan, The Demand and Supply of Public Goods

The distinguishing characteristic of [public] goods is not only that they can be consumed by everyone, but that there is no escape from consuming them unless one were to leave the community by which they are provided. Thus he who says public goods says public evils. The latter result not only from universally sensed inadequacies in the supply of public goods, but from the fact that what is a public good for some — say, a plentiful supply of police dogs and atomic bombs — may well be judged a public evil by others in the same community. It is also quite easy to conceive of a public good turning into a public evil, for example, if a country’s foreign and military policies develop in such a way that their “output” changes from international prestige to international disrepute. — Albert Hirschman, Exit, Voice and Loyalty

Thus, the revised definition allows us to see that public goods do not only face the long recognized risk of under-provision; they may also suffer from mal-provision — providing positive utility only for some and for others nothing, or sometimes even, only costs. A way to reduce the risk of such mal-provision could be to grant all concerned population groups a more direct say in selecting and shaping public goods, i.e. to better match publicness in consumption with publicness in decision-making. More issue-specific policy dialogue among all concerned actors and stakeholders could help achieve that. — Inge Kaul, Public Goods: Taking the Concept to the 21st Century

In his 1992 Republican National Convention speech, President George H. W. Bush proposed letting taxpayers commit up to 10 percent of their payment to reducing the national debt. The proposal never went anywhere, but it points to a good idea: Taxpayers should be able to designate how their tax dollars are spent. Already, we allow for this in very limited ways. A check-off at the top of the 1040 form invites every taxpayer to direct $3 of their federal tax to the Presidential Election Campaign Fund (only 6 percent of taxpayers do). In Virginia, my VAC invites me to contribute additional funds to more than 100 organizations ranging from the Democratic and Republican parties to the U.S. Olympic Committee, the Virginia Arts Foundation, and many local school and library funds. — David Boaz, We Should Get to Decide How the Government Spends our Taxes

Abortion

Some champions of legal abortion, for example, are all too happy to talk about choice until it comes to the taxpayers’ choice not to subsidize abortion. Then their reluctance to impose their values on others quickly goes out the window. Ditto for some proponents of gay rights who don’t just want to be free of restrictions on personal behavior, like oppressive anti-sodomy laws, but are actually willing to drive the Catholic Church out of the adoption business because of the church’s opposition to placing children with same-sex couples. “Freedom for me and not for thee” is a very common refrain in politics. — W. James Antle III, Whose liberty?

Neither President Obama nor the Democratic-controlled Congress seems to care for children. They favor killing them in the womb and making taxpayers fund their execution. For those who see the light of day, they want to doom them to failing schools and give them free needles to inject illegal drugs into their veins. With ‘friends’ like this in Washington, who needs foreign enemies to destroy America? — Mathew D. Staver

Bill H. 2542 “An Act relative to taxation” would allow taxpayers the opportunity to indicate on their state tax return that they would like the portion of their taxes usually spent on government-funded abortions to instead fund a program that allows mothers to leave their babies safely with authorities at designated “baby safe haven” locations. — Christopher S. Pineo, Proposed law would give taxpayers choice on abortion funding

Art

Bakers and florists who refuse service are colorful instances. They are burdening customers with their orthodoxies when they could be acting as ‘commmon carriers’ of whatever good/service they provide. Tax issues are less exciting but more wide-spread and consequential. Any organization that enjoys tax-exempt status is, in a sense, being subsidized by citizens who may not approve of what that organization does, or stands for. The issue here is structurally similar to the NEA ‘piss christ’ and Robert Maplethorpe controversies of yore. Should ordinary citizens, scandalized by this stuff, be forced to pay for it via taxes (or even just tax exemptions for organizations than sponsor it)? — John Holbo, Religious liberty and the Romance of Orthodoxy

If this [earmarking] system were now in operation the quarrel about art, taxes, smut and politics would be impossible. At the nub of the quarrel are two objections that may be stated as follows: (1) ‘I do not want my taxes spent to create dirty pictures, smutty statues and other so-called art that I don’t want my kids to see.’ (2) ‘I do not want my taxes used to support anything at all that can be called art.’ — Russell Baker, Taxpayers’ Choice

Unions

Moreover, many workers consider themselves to be forced, not free, riders. A forced rider is one who receives net harms from some collective action and is nevertheless forced to pay the perpetrators for their activities. Whether a union bestows net benefits or net harms on a worker can only be revealed by the choices he makes as he exercises his freedom of association. — Charles Baird, Labor Unions, The Encyclopedia of Libertarianism

The other reason that the unions’ free-rider argument fails is the problem of the forced rider — a worker who experiences net harms from a unions’ activities and is nevertheless forced to pay for them. Many workers might get better terms of trade representing themselves or hiring a nonunion representative to do the job. Moreover, while a union may get higher wages for a worker, the worker may so resent the forced association with the union that, on balance, the union makes him worse off. Whether a worker is made better off or worse off by a union’s activities cannot be proven. The relevant costs and benefits are subjective. So any worker whom a union labels a free rider, could just as well be a forced rider. The unions’ free-rider argument is specious. — Charles Baird, Unions and Antitrust

The second reason the free-rider argument is false is the problem of the forced rider. Unions claim to confer net benefits on all workers whom they represent. That is nothing but a big lie. For example, the CFA does not confer net benefits on me. To the contrary, I am much worse off having the CFA represent me than I otherwise would be. Just the psychic cost of being forced to have people with whom I have profound educational and philosophical differences speak for me far outweighs any monetary benefits they claim to have secured on my behalf. (Incidentally, I deny that the CFA has secured any monetary benefits for me.) So I suffer net harms from the CFA, and now you want to force me to pay for those net harms through so-called “fair share fees.” In economics a forced rider is a person who suffers net harms from some collective action and is forced to pay for them. There may be free riders, but there are also forced riders. Don’t you, as elected officials, have a moral responsibility to protect the rights of forced riders? We are citizens too. — Charles Baird, An Open Letter to the California Legislature

That a worker should be forced to contribute funds to political causes which he actually opposes seems illiberal and undemocratic to say the least. Nor can union participation in American politics be written off as insignificant. It is indeed a crucial factor in many elections. That a worker impairs the common good when he refuses to subsidize the various undesirables who have gained power in the labor union movement is ridiculous on the face of it. It is well to recall in this regard that the Teamsters Union with 1.5 million members is the largest single union in the United States. — Peter A. Farrell, The Case of the Free Rider

Cable

Currently, Canadian television consumers are unable to simply pick the channels they want to subscribe to. Instead, they must often select — and pay for — bundles of channels even if they have no intention of watching most of them. Imagine having to buy an entire fruit basket every time you want to pick up an orange. — Carmi Levy, Canadians may not want pick and pay TV as much as they think

This dude must be on the payroll of the cable companies or something. The analogy of buying just the sports page is absurd. A more apt analogy is going to buy a shirt, and being told that it is only available as a bundle with a jacket, pants, shoes,etc., that you DON’T WANT but is shoved down your throat anyway. Somebody should be in jail for price fixing and racketeering when you look at how consumers have been ripped off by the cable and entertainment industries. These practices would never be legal in any other non-government industry. The justifications are utterly bogus (diversity being the biggest red herring argument). I hope technology will overtake the industry and force change. They won’t give up this cash cow without a huge fight. — SonoranSnoozer, MAY: A la carte cable by demand

But McCain, a longtime champion of a la carte cable, was allowed to make his case last Tuesday before its Subcommittee on Communications, Technology and the Internet during a hearing on the “State of Video.” In his remarks, McCain compared the bundling of programming in cable and satellite packages to forcing customers to pay for the entire menu at a restaurant in order to get what they want to eat.

“Basically, I support a la carte, and I believe most Americans do, for the basic reason that consumers shouldn’t have to pay for television channels they don’t watch and have no interest in watching,” said McCain, a former Commerce Committee chairman who no longer sits on the panel. — Dan Nowicki, McCain bill would create ‘a la carte’ cable pricing

IdeaPlug

http://ideaplug.org/?t=Supreme_Court