April 14, 2005 | Commentary on Taxes
The April 15 tax deadline provides taxpayers the opportunity to
examine how their elected officials will spend their hard-earned
Washington will spend $22,039 per household in 2005 -- the highest inflation-adjusted total since World War II, and $4,000 more than in 2001. The federal government will collect $18,248 per household in taxes. The remaining $3,791 represents the budget deficit per household, which, along with all prior government debt, will be dumped in the laps of our children.
Here's a breakdown of how Washington will spend that $22,039 per household:
Social Security/Medicare: $7,245. 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 will need to be raised by the current equivalent of $5,200 per household by 2030 and $13,500 per household in 2050 to pay all promised benefits. The unpredictable costs of the new Medicare drug entitlement could add thousands more to each household's tax bill.
Defense: $4,451. 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 9/11 attacks reversed this trend, and the $1,500 per household increase since 2001 has returned defense spending to its historical levels.
Low-income programs: $3,559. 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 9 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 credits.
Interest on the federal debt: $1,582. The federal government is $8 trillion in debt. It owes $4.7 trillion to public bond owners, and the rest to other federal agencies (mostly to repay the Social Security trust fund, which lawmakers raid annually). Record-low interest rates have reduced the interest payments by $1,000 per household since 1998. As interest rates rise back to normal levels, so will these costs to taxpayers.
Federal employee retirement benefits: $838. This spending funds the retirement and disability benefits of federal employees, including the military. Interest from federal trust funds covers part of this spending.
Education: $627. Primarily a state and local function, 9 percent of education spending comes from Washington. Federal education spending has surged 100 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.
Health research/regulation: $614. Health research spending has doubled since 1999, and nearly all of that growth has been concentrated in the National Institute of Health. This category includes the Food and Drug Administration and dozens of grant programs for health providers.
Veterans' benefits: $606. The federal government provides income and health benefits to war veterans. Spending is up 51 percent since 2001.
Highways/mass transit: $388. 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.
Justice administration: $361. Justice spending includes federal attorneys and prisons, as well as law enforcement grant programs. New homeland security costs have added $80 per household to justice spending.
Unemployment benefits: $338. Unemployment costs fluctuate based on the number of unemployed Americans. Recent costs have ranged between $220 per household in 2000 and $526 per household in 2003. This year, unemployment costs are decreasing as job growth continues.
International affairs: $284. 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.
Natural resources/environment: $275. This includes national parks, federal lands, water projects and environmental clean-up.
Agriculture: $271. Despite rhetoric about supporting small family farms, the vast majority of farm subsidies are distributed to large farms with average household incomes over $135,000.
The programs listed above cover $21,441 per household. The remaining $598 is allocated to all other federal programs, including social services, space exploration, air transportation and community development.
Taxpayers must decide for themselves if they're getting their money's worth.
Brian Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
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