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Commentary

The Federal Deficit: Why You Should Care


     
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Wilmington-area taxpayers might have strong feelings about government deficit 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 to trim 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 counter-proposal to reduce deficit-spending by $4 trillion over the next 12 years?

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

A couple earning $80,000 per year, slightly more than twice the average per capita income in the United States, knows what they can afford to buy and what they can’t afford to buy. And they probably budget accordingly.

But this same couple has no idea what a billion dollars will buy—let alone $3.8 trillion. There is no way for anybody to really comprehend such numbers.

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

The spending continues for another important reason as well, according to what is known in economics as “public choice” theory. Most government programs directly benefit distinct groups of people, such as farmers, highway builders, senior citizens, or defense contractors. For members of these groups the bounty can be huge, amounting to tens, 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: a few dollars a year, who cares?

That attitude may be understandable at some level. In any given year any single government program probably will 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 an entire lifetime.

So how much do those nine-and-twelve-zero government programs cost us?

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 40-year-old Wilmingtonian—an underemployed college graduate who earns $33,082 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 Wilmington Metro area, according to the Census Bureau’s American Community Survey.

According to our calculations, that individual, based on current tax rates and a projected lifespan of 80 years, will pay more than $273,823 in future federal taxes to finance government spending. That money, if invested over the next 40 years, could be worth well over $1 million.

Of our hypothetical worker’s $273,823 in future taxes, some $37,262 will go just to pay interest on the federal debt. Government administrative costs and personnel benefits will cost this taxpayer some $15,188. He or she will pay an estimated $35,220 in taxes to help finance our national defense. Medicaid will cost $33,984; welfare $21,754; Medicare $53,964; Social Security $56,408.

Federal spending is out of control because most taxpayers don’t understand how much government really costs them over a lifetime. Politicians talk about billions and trillions—abstract numbers that are difficult to comprehend.

But those huge abstractions mean something. As we’re now able to demonstrate, they mean families must struggle not only to pay their own bills, but to pay 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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