Taxpayers rushing to complete their 1040s before the April 17 tax deadline may stop to wonder: What are these steep federal taxes going for?
Washington will spend $24,106 per household in 2007 the highest total since World War II, and an inflation-adjusted $4,000 more than in 2001. The federal government will collect $21,992 per household in taxes. The remaining $2,114 represents this year’s budget deficit per household, which, along with all prior government debt, will be dumped in the laps of our children.
Washington will spend this $24,106 per household as follows:
c Social Security/Medicare: $8,301. The 15.3 percent payroll tax, split evenly between the employer and employee, covers most of these costs. This system can remain sustainable only if there are enough workers to support all retirees, which is why it risks collapsing under the weight of 77 million retiring Baby Boomers. If nothing is done, taxes eventually will need to rise by $11,651 per household (adjusted for both inflation and rising incomes) to pay all promised benefits.
c Defense: $4,951. The defense budget covers everything from military salaries to operations in Iraq and Afghanistan to the research, development and acquisition of new technologies. Lawmakers drastically reduced defense spending following the collapse of communism in the early 1990s. The September 11, 2001, attacks reversed this trend, and the inflation-adjusted $1,618 per household increase since 2001 has returned defense spending closer to its historical levels.
c Anti-poverty programs: $3,550. Nearly half of this spending subsidizes state Medicaid programs that provide health services to poor families. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child-care subsidies, Supplemental Security Income (SSI) and low-income tax credits. Despite recent rhetoric about “cuts for poor,” federal anti-poverty spending now tops 3 percent of gross domestic product (GDP) for the first time ever, and state and local governments add another 2 percent of GDP.
c Interest on the federal debt: $2,071. The federal government is $9 trillion in debt. It owes $5 trillion to public bond owners, and the rest to other federal agencies (mostly to repay the Social Security trust fund, which lawmakers raid annually). Despite rising debt, record-low interest rates have limited costs. As interest rates rise back to normal levels, these costs will spike.
c Federal employee retirement benefits: $907. This spending funds the retirement and disability benefits of federal employees, including the military.
c Health research/regulation: $664. This spending is up 51 percent since 2001, and much of this growth is concentrated in the National Institute of Health. The category also includes the Food and Drug Administration and dozens of grant programs for health providers.
c Veterans’ benefits: $627. The federal government provides income and health benefits to war veterans. Spending is up 36 percent since 2001.
c Education: $584. Education spending is primarily a state and local function; 9 percent of the total comes from Washington. Federal education spending has surged 62 percent since the 2001 enactment of the No Child Left Behind Act. Most federal dollars are spent on low-income school districts, special education and college student financial aid.
c Highways/mass transit: $418. Most highway and mass-transit spending is financed by the 18.4 cent per-gallon federal gas tax. Washington subtracts an administrative cost and sends this money back to the states with numerous strings attached. Some economists suggest it would be more efficient to let states collect this tax and decide how to spend the money themselves.
c Justice administration: $392.This includes federal attorneys and prisons, as well as law enforcement grant programs. New homeland security costs have added 100 per household to justice spending.
c Natural resources/environment: $305. This includes national parks, federal lands, water projects and environmental clean-up.
c International affairs: $304. This includes foreign economic and military assistance, operation of U.S. Embassies abroad, and contributions to organizations such as the United Nations. International spending has nearly doubled since September 11.
c Unemployment benefits: $299. Unemployment costs fluctuate based on the number of unemployed Americans. This year, unemployment costs are decreasing as job growth continues.
c Community and regional development: $282. The doubling of spending in this category since 2004 comes from the Federal Emergency Management Agency (FEMA), which is financing much of the Hurricane Katrina relief.
The programs listed above cover $23,655 per household. The remaining $451 is allocated to all other federal programs, including farm subsidies, social services, space exploration, air transportation and energy.
Taxpayers must decide for themselves if they’re getting their money’s worth.
Brian Riedl is the Grover M. Hermann fellow in federal budgetary affairs in the Roe Institute for Economic Policy Studies at the Heritage Foundation (heritage.org).