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I. INTRODUCTION
This Article explores the relationship between how taxes distribute their costs and benefits and how likely taxes are to succeed as revenue sources over time. Public choice theory contends that how a law allocates its costs and benefits affects how well that law accomplishes its goals. This Article employs and evaluates this contention in the context of federal and state tax law.
The federal income tax base is regularly shrinking, an outcome that public choice theory would not find surprising. At present, income tax proceeds go into a pool of general revenues, whose funds benefit the large and yet diffuse and amorphous U.S. public as a whole. As a result of this arrangement, no particular beneficiary group has an incentive to prevent the tax base from shrinking or to rally behind any of the wide-ranging reforms that lawmakers have been trying in vain to implement. In contrast, the interest groups that do play a role in tax lawmaking have incentives to contract the tax base by protecting special exceptions and carve-outs.
While the cost-benefit structure of the federal income tax leads to tax base erosion and stymies reform, other tax laws, particularly state tax laws, offer an alternative. In particular, many states earmark* 1 specific taxes for specific programs that benefit concentrated groups. Public choice theory suggests that these earmarked taxes are more likely to remain long-term sources of revenue. The interest groups that benefit from earmarked taxes will work to preserve and to expand these taxes, guarding existing tax bases and even supporting reforms if necessary. In particular, earmarked taxes that benefit concentrated groups and impose costs on diffuse groups should be the most successful at raising revenue over time. In contrast, earmarked taxes that benefit diffuse groups and impose costs on concentrated groups should be the least successful at raising revenue over time.
This Article tests these public choice theory suggestions about the success of taxes with different cost-benefit configurations. To do this, I describe and analyze a comprehensive dataset I compiled on the recent history of approximately 1500 state-level earmarked taxes, along with a case study of the politics of a recently enacted earmarked tax. Using this recent historical evidence, this Article examines the extent to which the costs...