Friday, April 25, 2008

Where Our Money Goes

Arnold Kling has a post at EconLog that shows how our tax dollars are being spent:

Figures in parentheses are from FY 2000, when we ran a $200 billion surplus. I am estimating as best I can from these tables

Defense: $515 billion ($294)
Homeland Security: $38 billion ($0; was in Domestic Necessary)
Domestic Necessary: $713 billion
Domestic Worthy Causes*: $305 billion ($217)
Social Security: $644 billion ($409)
Medicare: $408 billion ($197)
Medicaid and SCHIP: $224 billion ($136)
Interest: $260 billion ($223)
Total: $3107 ($1789)

(*Domestic worthy causes = Agriculture, Commerce, Education, Energy, Health and Human Services, Housing and Urban Development, Interior, Labor, Transportation, NSF)

And how the money is raised:

Personal income taxes: $1259 billion ($1004.5)
Corporate income taxes: $339 billion ($207.3)
Social Insurance receipts: $949 billion ($652.9)
Other taxes: $153 billion ($161)
Deficit: $400 billion (surplus $236 billion)

Several things deserve comment.
1. Domestic Necessary (which Kling explains as courts, justice, Treasury and the "mysterious" other mandatory spending) seems ridiculously high.

2. Domestic Worthy (Agriculture, Commerce, Education, Energy, Health and Human Services, Housing and Urban development, Interior, Labor, Transportation, NSF(?)) is not worthy. You could eliminate at least 7 of those categories and no one would even notice.

3. While I detest deficits, interest costs have risen the least on this list.

4. The Medicare drug add on has SS and Medicare already running at a deficit. Everybody talks about how in the future these programs will be too costly; the future is apparently today.

5. Spending on Medicaid and SCHIP has climbed almost as much as Defense (65% rise for this versus 75% rise for Defense). It would appear that we are well on the way to a system where government pays the tab for healthcare. I wonder why we aren't getting better results? Hmmmm, maybe government involvement in healthcare is the problem.

6. Corporate taxes have boomed (up 65%).

7. There is no way we can raise taxes enough to eliminate the budget deficit.

8. Kling says that taxes will have to rise to balance the budget, but I would dispute that. Raising growth could get us there without tax hikes if we control/reduce spending.

My question is this: Are we really getting our money's worth with this massive spending? If we eliminated the Departments of Energy, Agriculture, Education, Labor, Commerce and Transportation, would anyone complain except the industries who have captured these agencies for their own benefit? Would anyone really notice that the Department of Commerce was missing? Does anyone here know who heads any of these Departments? If they were kidnapped tomorrow would anyone reading this blog be willing to contribute to the ransom payment?

The cost of complying with the tax code is somewhere in the neighborhood of $300 billion. Estimates are all over the map, but that is an estimate taken from the Tax Foundation and other sources and includes corporate and individual compliance. What would it do for growth if we quit wasting that money? How much faster would the economy grow if we eliminated all the market distortions caused by the tax code(which has grown to somewhere between 17,000 and 60,000 pages depending on who you ask and how you count)? Can't we do better than this?

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