Where do tax dollars go? The idealistic—and probably hopeless—plan to educate Americans about the budget by sending them itemized…

Commentary about business and finance.
April 15 2011 5:10 PM

Can I Get a Receipt for That?

An idealistic—and probably hopeless—plan to educate Americans about the budget by sending them itemized "tax receipts."

Man with business papers
It's tax season

Back in September, some of the bright lights at the left-of-center think tank Third Way came up with the idea for a taxpayer receipt: an itemized account of exactly how the federal government spends your hard-earned dollars.

"Corn syrup, milk chocolate, sugar, cocoa butter, coconut, almond, soy lecithin … any consumer can read these ingredients and their nutritional value on every package of a 75-cent Almond Joy," wrote Third Way's David Kendall and Jim Kessler. "What is provided to a taxpayer with a $5,400 tax bill?" The answer is: nothing. Americans pay trillions in federal taxes per year. But they know laughably little about what they get for that money, and their "ridiculous beliefs" impede the budgeting process, the think tank said.

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The idea for a tax receipt—an easy breakdown showing what goes where, provided to everyone who sends in a return—quickly caught on in Washington. A bipartisan group of House members and Senators floated bills mandating emailed or snail-mailed statements. "Every time you make a major purchase, you get a receipt," Rep. Jim Cooper, D-Tenn., argued, announcing his legislation yesterday. "The same should be true of tax dollars."

In his State of the Union address, President Obama promised something similar. "Because you deserve to know exactly how and where your tax dollars are being spent," he said, "you'll be able to go to a website and get that information for the very first time in history."

There are already at least three receipt tools you can console yourself with after you mail your taxes tonight. Third Way put up a nifty tax-receipt calculator, with dollars and percentages for scores of spending priorities. This morning, the White House launched a similar system. "Just enter a few pieces of information about your taxes," it says, "and the taxpayer receipt will give you a breakdown." And WhereDidMyTaxDollarsGo.com offers a fancy colored pie chart, breakdowns of your effective and marginal rates, and a spate of other information.

So where do your tax dollars go? Look on your return—you have until Monday to file, procrastinators—and find the total amount you paid. Let's say it's $6,000. According to the Third Way breakdown, you spent the most on Social Security and defense, which each received about $1,200 from you and you alone. Other big ticket items include Medicare ($784.04), assistance for low-income families ($557.09), and interest payments to our creditors, like those fearsome Chinese bondholders ($396.79). (Notably, the tax receipt calculators work by breaking down your payment in the same proportions as the federal budget. They don't account for the government's deficit spending, to be paid for via bigger interest payments down the road.)

According to the many proponents of tax receipts, such a breakdown should serve as a powerful corrective to our wild misconceptions about government spending. The foreign aid canard is perhaps the most outrageous and persistent, so much so that Obama actually mentioned it in his debt-reduction speech this week. Americans believe we spend about 25 percent of the budget—that's about $890 billion—on foreign assistance. They think that number should be 10 percent, so they are eager to put foreign-aid spending on the chopping block. But foreign aid makes up about 0.6 percent of spending. If you pony up six grand in federal taxes, just $33.97 goes overseas, according to Third Way's calculator.

Americans share similarly crazy beliefs about what we grant to the Corporation for Public Broadcasting, the nonprofit umbrella for PBS and NPR. In March, CNN asked Americans what portion of the federal budget we devote to CPB. The median guess turned out to be 5 percent, which works out to about $180 billion annually. That is more than the federal government spends on education, social services, agriculture, and trade and economic development—combined. It is off by a factor of more than 400.

In Americans' defense, it is hard to guess how much the United States spends on any one thing, whether you are giving a proportionate or a dollar answer. The federal budget is a dizzying mess of nine-digit numbers assigned to hundreds of different programs. Even budget wonks have trouble keeping tabs on it. Still, all our minor misconceptions add up to one much bigger, very pernicious one: We vastly overestimate how much we devote to so-called "nondefense discretionary spending," and vastly underestimate how much our welfare state and wars cost us.

That explains why Americans want to balance the budget on the back of things like foreign aid: We think the money is there. We do want to get our fiscal house in order, by the way: A March poll by the Pew Research Center found that nearly nine in 10 name it as a "top" or "important but lower" priority. But we oppose making cuts or changes to the programs that make up the bulk of spending, namely Social Security, Medicare, Medicaid, and defense. We also oppose raising taxes. When asked what we're willing to cut, we name things like humanitarian aid. The math does not, and will never, work out.

"With a well-designed receipt, myths and misconceptions about taxing and spending that refuse to die would be met with a mortal blow," Third Way's think-tankers wrote, proposing the taxpayer receipt. To boot, they noted, it would cost only about $15 million. (The White House's online calculator works pretty well and presumably cost far, far less than that.)

Still, not all good ideas prove revolutionary—and misconceptions die hard. Maybe sending a receipt to Americans' homes or inboxes will make them take a close look at it, softening their resistance to Social Security cuts and wondering why we don't spend more on schools. But really, who ever reads receipts?

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