04/22/2008 05:12 am ET Updated May 25, 2011

Do You Know Where You IRS Check Goes?

Not where most Americans think, based on everything we've seen in polls and focus groups. Americans' distorted ideas about where the government spends most of their money leads to distorted thinking about where to focus when it's time to rein in the budget. That time may be surprisingly close at hand.

Economist Douglas Holtz-Eakin, who's now advising the McCain campaign, once said he didn't really understand why anyone would want to be president in 2008 given the fiscal mess that will fall into his or her lap. A $400 billion deficit, probably more. A $9 trillion federal debt. "Official" recession or not, tax revenues to the Treasury are expected to fall. Plus the first real signs of long-term entitlement problems have started to appear: Medicare will dip into its trust fund for the first time this year, and the baby boomers aren't even eligible yet.

The country's in a real budgetary jam, and regardless of which party takes the White House, there's going to be pressure to cut spending in areas deemed less crucial.

So far, the Presidential candidates seem to be painting themselves into pretty tight fiscal corners. For the Democrats, both Hillary Clinton and Barack Obama are promising "fiscal responsibility" and modest tax hikes on the very rich. They're both coupling that with considerably higher spending on health care and other areas. Maybe they'll be able to make the numbers add up, but neither has said much about how to handle Medicare and Social Security. For the Republicans, John McCain says he'll make the Bush tax cuts permanent, get rid of the alternative minimum tax, and cut government "waste" to make ends meet. He hasn't been too specific about what exactly he's going to cut, although he does say he's going after earmarks. Most Americans probably wish him well with that, but it's a miniscule drop in the budget bucket. At roughly $18 billion a year, abolishing earmarks won't do much to make up the $400 billion annual hole we've already got, much less offset more tax cuts.

Typical Americans aren't any realistic than those who hope to lead them. Focus groups typically surface calls to cut the space program, foreign aid, welfare, and farm subsidies, along with the arts and humanities endowments (depending on the participants' political gut-feelings). Maybe we could get along without those programs, maybe not, but in budget terms, it doesn't get you very far. You could eliminate those categories completely (which isn't going to happen), and you'd only cut federal spending by less than five percent. The same is true of everyone's favorite target, waste and fraud. There's plenty of it, no question, but surveys show that most people believe half of every tax dollar is wasted - and by any reasonable standard that's way off the mark.

What most Americans haven't grasped is that two-thirds of the budget goes to five programs: Social Security, defense, Medicare, Medicaid, and interest on the debt. The $237 billion we pay in interest isn't a government program of course, but it's a given. It's a huge amount of money - more than we spend annually on the war in Iraq in fact - but like the minimum payment on your credit card, there's no way to avoid paying it.

That leaves the big four: Social Security, Medicare, Medicaid, and defense. They've all been fairly impervious to budget scrutiny lately. All four have strong support in the country at large, and politicians dread headlines like "Senator Mean calls for Social Security cuts," and "Representative Awful's defense cuts will cost jobs locally."

Still if there's one thing most budget experts agree on is that we have to look at taxes and spending to get a handle on the country's budget problems, and we need to put the four biggies on the table. Defense cuts may be in the air with all the talk about the cost of the Iraq war, but the country's awash in wishful thinking about how much that will help. Best estimates are that the government has spent nearly half a trillion dollars on Iraq up to now. During the same time period, we added six times that much -- $3 trillion -- to the federal debt. Even if we could cut off war spending overnight (which we can't), it's not nearly enough to put us on a sound fiscal path.

As far as the "entitlements" go - Medicare, Medicaid and Social Security - it's going to take enormous political effort to get them under control. As a matter of procedure, these programs are mainly driven by formulas and run on autopilot. Unlike, say, the Agriculture Department, Congress doesn't decide how much it wants to spend on these programs each year. It just tries to cope with how much they actually cost. And the combination of skyrocketing health care costs and 78 million retiring boomers mean these programs are going to cost much, much more unless we do something.

When President Bush announced his $3 trillion budget a few months ago, columnist Ruth Marcus noted that, for the first time, the government didn't distribute hard copies of the 2,200-page federal budget. Instead, it was published online. Marcus says this poses some difficulties for "a "non-trivial number" of DC-insiders who "read budget documents in bed." No one expects average voters to be that obsessed with the details of government spending. But how can we possibly make good decisions if we don't know how government actually spends money now? How can we reconsider priorities if we don't know what the real priorities are now? And how can we possibly tell whether the next president is saying things that make any kind of sense unless we know what the facts really are?