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Commentary

Those Numbing Budget Numbers Mean Something


     
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One of the reasons federal spending has spiraled out of control in recent decades is that neither the public, nor the Congress, has any idea what the huge budget numbers really mean.

Per capita income in the United States now stands at approximately $33,070. It’s higher in most urban areas. In the Dallas-Fort Worth metro area, for example, the most recent figure from the Census Bureau, for 2009, was $39,514.

A couple earning two or even three times that amount—that is, about $79,000 per year, or even $118,000 a year—knows what they can afford to buy. They also know what they can’t afford to buy. And most people budget accordingly.

But this same couple has no idea what a trillion dollars will buy—let alone $3.5 trillion, the amount the federal government will spend in the 2011 fiscal year. There is no way for anybody—from the typical wage-earner in the DFW area to the chairmen of the House and Senate budget committees—to really comprehend such numbers.

There’s also another important reason for government’s out-of-control spending.

Members of the “public choice” school of economics explain it like this: Most government programs directly benefit distinct groups of people, such as highway builders, social workers, senior citizens or defense contractors. For members of these groups, the bounty can be huge, amounting to tens or even hundreds of billions of dollars each year. Naturally, members of these groups have a powerful incentive to fight for every dollar. But taxpayers usually won’t fight to save a few dollars, which is what they’ve been told the typical government program costs them.

And that may be understandable at some level: in any given year, any given government program might cost the typical taxpayer, or the hypothetical couple I mentioned above, just a few dollars.

The trouble is: There are thousands of government programs. And virtually none of these programs will last just a year. They are ongoing. Taxpayers don’t pay just once, they pay year after year over their entire lifetime.

So how much do those multibillion-dollar government programs cost us personally?

I set out to answer this question recently with a team of academic colleagues affiliated with the Independent Institute in Oakland, Calif. Our purpose was not just to calculate a number, but to make the process personal and accessible, so any taxpayer can calculate his or her approximate costs for virtually any major government program. [This cost calculator is now available online at www.MyGovCost.org.]

For example, consider a hypothetical 33-year-old Fort Worth suburbanite—a college graduate who earns $39,514 per year, the average per capita for the area. We chose that age because in 2009, the most recent year for which government data are available, that was the median age for the DFW metro area.

According to our calculations, that individual, based on current tax rates and a projected lifespan of 80 years, will pay more than $426,297 in future federal taxes to finance government spending.

Some $61,223 in taxes will go to pay interest on the federal debt. If this suburbanite didn’t have to pay that $61,223 in taxes to help finance the government’s debt, the money could be invested in a private account and over time would grow to an estimated $278,880. Think of what cutting the deficit now could mean to our children.

Government administrative costs and personnel benefits will cost this same individual some $22,962. Trimming these costs could earn the average person up to $135,000. He or she will pay an estimated $52,959 in taxes to help finance our national defense. Medicaid will cost $53,109; welfare $32,525; Medicare $87,140; Social Security $85,955.

I think you get the picture.

Federal spending is out of control because most taxpayers don’t understand the true costs. Politicians talk about billions and trillions—numbers most of us can’t comprehend.

But those huge numbers mean something. As we’re now able to demonstrate, they mean families must struggle not only to pay their own bills, but to pay the government’s as well.


Emily C. Skarbek is a Research Fellow at the Independent Institute, founding Director of the Institute's Center on Entrepreneurial Innovation (COEI) and the COEI Government Cost Calculator, and Lecturer in the Department of Political Economy at King's College in London, England.






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