By Brent Neiser
State and local governments are the Laboratories of Democracy. But even laboratories have rules and if a Mad Scientist wants to use a laboratory there should at least be some lab monitors (in and outside of the Lab) to see that experiments don’t get out of hand.
The best ideas of political innovation and fairness rise to the top from healthy competition. But competition comes from divided government, or thoughtful minority parties allowing various sides and points of view to gently collide creating opportunities to debate, persuade, and compromise.
In the laboratory of taxes — the broader the tax base and the diversity of revenue-generating methods can keep overall taxation moderate and not burdensome on a handful of groups or relying excessively on certain types of transactions. Rates can be kept lower because the tax base is spread among a variety of activities and people – perhaps with less regressivity. Solutions include two-year budgeting cycles, and reasonable thresholds/caps on the number and frequency of initiative and ballot measures. We do not have to become a “no income tax state” – just a state with diverse and reasonable taxing methods.
Over at the regulation lab — consumer protection, safety, reasonable incentives, and thoughtful nudges (choice architecture – like auto-enrollment for retirement accounts at work) can work in harmony if emerging from a balanced process. Without a balanced process we see perverse incentives that can lead to new harms, anti-or slow growth eYects, conflicting aims, out-ofdate/out-of-touch regulations, and disincentives for entrepreneurial activities and investment capital put at risk for reasonable returns. Regulations stay on the books long after their sponsors and supporting coalitions have left the building (left oYice or the state).
A heavy and continuous regulatory burden can stifle innovation from the local or global marketplace, mask new consumer preferences that support the social and climate good, and slow/stop investments in underserved areas. Consumers, employees, entrepreneurs, and ultimately taxpayers all miss out. Remedies for this include regulatory sunsetting, performance audits, and the adoption of “Regulatory Impact Statements/review process” like Environmental Impact Statements to filter, limit, and slow the addition of new regulations and perform mid-course corrections.
So, let’s keep experimenting in our laboratories of democracy — keeping the lab safe, clean, and full of spirited discourse as we consider taxation and regulation, so we do no harm while doing good.
Brent is from Greenwood Village and is CEO of What’s Next With Money YouTube Channel as well as Former Chair – Consumer Financial Protection Bureau (CFPB) Consumer Advisory Board.