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Commentary

Grasping Budget’s Billions and Trillions
Incomprehensibly huge numbers mask real burdens


     
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Taxpayers might have strong feelings about government spending, but most have no idea what the huge, abstract numbers in the federal budget mean to them personally. So most of us pay our taxes, vote on occasion, and let the politicians deal with the dollars.

Was the recent compromise trimming this year’s $3.8 trillion federal budget by approximately $38.5 billion a good deal for taxpayers? How about the proposal by House Budget Committee Chairman Paul Ryan (R., Wis.) to reduce spending by some $6.2 trillion over the next 10 years? Or President Obama’s $4 trillion counterproposal?

It’s hard to say. Numbers followed by nine or more zeros—billions and trillions—are effectively meaningless to most of us.

A couple earning $80,000 a year (slightly more than twice the average per-capita income in the United States) knows what they can and can’t afford, and they probably budget accordingly. But the same couple has no idea what a billion dollars will buy—let alone $3.8 trillion. There is no way for anybody, whether a typical wage-earner or the chairman of the House Budget Committee, to really comprehend such numbers.

So the spending machine rolls on. The debate may be heated; government shutdowns may be threatened; but the spending persists.

Year after year

The spending continues for another important reason, according to what’s known in economics as public choice theory. Most government programs directly benefit distinct groups such as farmers, road engineers, senior citizens, or defense contractors. For these groups, the stakes can be huge, amounting to tens or even hundreds of billions of dollars a year, giving them powerful incentives to fight for that money. But individual taxpayers won’t usually fight for a few dollars, which is what they’ve been told the typical government program costs them.

It’s true that in any given year, any one government program will likely cost the average taxpayer just a few dollars. The trouble is that there are thousands of government programs. And virtually none of them will last for only a year. They continue, and taxpayers don’t pay for them just once; they pay year after year over their entire lifetimes.

So how can we understand how much those nine- and twelve-zero government programs really cost us? I set out to answer that question recently as part of a team affiliated with the Independent Institute in Oakland, Calif.

Our purpose was not just to calculate the numbers, but to make them personal and accessible, allowing any taxpayer to calculate his or her approximate costs for virtually any major government program. Our cost calculator is available at www.MyGovCost.org.

Out of control

For example, consider a hypothetical Philadelphia area resident who is 37 years old (the median age in the metropolitan region in 2009), has a college degree, and earns $45,565 annually (the area’s average per-capita income that year). According to our calculations, based on current tax rates and a projected life span of 80 years, that person will pay more than $420,000 in taxes to finance federal government spending over the rest of his or her lifetime. If invested over the next 43 years, that money could be worth much more than $1 million.

Of our hypothetical worker’s $420,000 in taxes, $58,658 will pay interest on the federal debt. Administrative costs and personnel benefits will cost him or her $22,972. He or she will pay $53,146 to finance national defense; $52,238 for Medicaid; $32,746 for welfare; $84,272 for Medicare; and $85,637 for Social Security.

Federal spending is out of control partly because most taxpayers don’t understand how much government really costs them over their lifetimes. And politicians talk only of billions and trillions—abstract numbers that are difficult to comprehend.

But those huge numbers do mean something. They mean families must struggle to pay not only their own bills, but also the government’s.


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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