April 12, 2004
By Brian M. Riedl
Frustrated taxpayers dutifully completing their 1040s frequently
ask themselves an understandable question: Where is all this money
going? And they deserve an answer.
The federal government is projected to spend $21,671 per household
in 2004 -- the most since World War II and $3,500 more than in
2001. Tax revenues will reach $16,981 per household through a
combination of the income tax, payroll tax, gas tax, estate tax and
assorted business taxes typically passed on through higher prices
and smaller investment returns. The remaining $4,690 represents the
deficit per household, which will be dumped in the laps of our
Here is a breakdown of where that $21,671 goes:
Social Security and Medicare: $7,165. The 15.3
percent payroll tax, split evenly between the employer and
employee, covers most of these costs. Contrary to popular belief,
individuals' contributions are not set aside for their own
retirement, but used to fund the benefits of current retirees.
Although there were once 15 workers per retiree, the retirement of
the baby boomers will leave only two workers to fund the benefits
of each retiree. By 2030, the added costs of that burden are
projected to reach what, in today's economy, would be $5,200 per
household. In 2050, that additional tax would climb to $13,500 per
household. The unpredictable costs of the new Medicare drug benefit
could add thousands more to each household's tax bill.
Defense: $4,240. 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 cut defense spending throughout
the 1990s. The 9/11 attacks reversed this trend, and the $1,300 per
household increase since 2001 has returned defense spending to its
Low-income programs: $3,479. Nearly half of this
spending subsidizes state Medicaid programs that provide health
services to poor families. In line with economy-wide health-care
trends, Medicaid costs are rising 10 percent per year. 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
Interest on the federal debt: $1,460. Washington
is $7 trillion in debt. It owes $4 trillion to the public that owns
its bonds and the rest to other federal agencies. Record-low
interest rates have reduced the interest payments by $1,000 per
household over the last six years. As interest rates climb back to
normal levels, so will these costs to taxpayers.
Federal employee retirement benefits: $835. This
funds the retirement and disability benefits of federal employees,
including the military. Interest from federal trust funds covers
part of this spending.
Health research and regulation: $619.
Health-research spending has doubled since 1998, and nearly all of
that spending growth has been concentrated in the National
Institute of Health. This category also includes the Food and Drug
Administration and dozens of grant programs for health
Education: $583. Primarily a state and local
function, 8 percent of education spending comes from Washington.
Federal education spending has surged 76 percent since the 2001
enactment of the No Child Left Behind Act. Most federal dollars go
to low-income school districts, special education and college
student financial aid.
Veterans benefits: $565. The federal government
provides income and health benefits to veterans. Spending is up 34
percent since 2001.
Unemployment benefits: $451. Unemployment costs
fluctuate based on the number of unemployed Americans. Recent costs
have ranged between $220 per household in 2000 (when unemployment
was low) and $526 per household in 2003 (when unemployment was
higher). This year, unemployment costs are decreasing as job growth
Highways and mass transit: $400. Most highway and
mass transit spending is financed by the 18.4 cent per-gallon
federal gas tax. Per-household costs have increased from $254 in
1998 to $400 this year, and the current highway reauthorization
bill in Congress would boost them substantially.
Justice administration: $389. Justice spending
includes federal attorneys and prisons, as well as law enforcement
grant programs. New homeland security costs have added $100 per
household to justice spending.
International affairs: $320. This includes foreign
economic and military assistance, operation of American embassies
abroad, and contributions to organizations such as the United
Nations. International spending has doubled since 9/11.
The programs listed above cover $20,506 per household. The
remaining $1,165 is allocated to all other federal programs,
including farm subsidies, environmental programs, space
exploration, air transportation and community development.
Taxpayers themselves will have to answer a final question: Are they
getting their money's worth?
is Grover M. Hermann Fellow in Federal Budgetary Affairs in the
Thomas A. Roe Institute for Economic Policy Studies at The Heritage
Distributed Nationally on the Knight-Ridder Tribune Wire
Frustrated taxpayers dutifully completing their 1040s frequently ask themselves an understandable question: Where is all this money going? And they deserve an answer.
Brian M. Riedl
Grover Hermann Fellow in Federal Budgetary Affairs
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