Tea Parties and Public Choice Theory

Put your wonk hat on. Economists Brian Wesbury and Robert Stein write:

While the theory of public choice can be broadly applied, it is the ideas of "special interests" and "rational ignorance" that are useful in understanding last week's tea parties.

Here's an example of public choice at work. Let's say teachers could benefit by $2,000 each per year (in higher pay or benefits, smaller classes, etc.) from a piece of legislation currently under debate. But the cost per taxpayer averages just $15 per year.

The "special interests" (teachers and politicians) have substantial personal incentive to see that the bill is passed. Teachers, who benefit directly, will use time and money to lobby for the bill. And lawmakers will expect campaign contributions, votes or both, in exchange for their support.

But the taxpayer will remain "rationally ignorant" of the whole process. Why spend time even thinking about an issue when the cost is only $15 per year?

....This is why government will tend to grow in excess of what a true democracy really wants. At least, it will grow until those $15 hits accumulate to such a level that people have finally had enough, and in a seemingly spontaneous eruption, the average voter finds the energy to fight back.

Apparently, this is what happened last week.

Here is an interesting set of facts. If the government increased the top tax rate from the current rate of 35% to 100% (yes, that's right 100%), it would only collect an extra $400 billion this year. In other words, confiscating all the income that is currently taxed at 35% would not raise enough revenue to cover any of the annual deficits projected in the next 10 years. There is no way that tax hikes on the rich alone can pay for proposed spending in the current budget.