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?

Comments

[Sundialsvc4]

Citizens should know that many public government web-sites produce a flood of up-to-date information. The Congressional Record, the Budget, and actual expenditures are dutifully recorded and they're just a mouse-click away.

That resource is especially valuable since all three of the main-line candidates are sitting United States Senators whose every toilet-flush is public record if you know where to look. (Umm, so to speak. Wink!)

[GJMandinka]

Unfortunately, the financial hole the U.S. finds itself in is much more complex than just increasing taxes and reducing targeted spending. We can increase taxes, reduce spending, stop accruing debt, and even pay down the debt. All of those are within our immediate grasp and should be done immediately. What we cannot address quickly is the devaluation of the dollar and the massive trade imbalance. We cannot immediately address the impact of climate change on food supplies (stay tuned), the insane national lassitude that caused us to do nothing about reducing our dependence on oil after the embargo taught us how vulnerable we were to price increases. We can do nothing immediately about an information feedback system that has been dumbed-down, and outright manipulated to never show us any negative data until it is far too late for a comfortable correction.
These things happened gradually and it will take time for them to be undone. Time and honesty about what the root problems were/are. Can you really see a Milton Friedman disciple saying, "You know, this really didn't work well. Markets need uniform regulation to prevent them from being driven to economy shattering risks."
We also have to overcome several decades of propaganda that led us to slowly accept the changes that have led us to this point. For instance: Heard anyone talk about the financial cost of Not having a particular social program in place?

[WorkingClass]

Deep deep cuts in defense. Big big hike in taxes on the rich. If the people were represented in congress this would already be happening.

[worldtraveller]

Yep.. tax me more and I will just stop working... Who is John Galt!!!!!!!

[WIpatriot]

Dare ya.

[IntrepidReader]

This piece puts me in mind of Sir Walter Elliott in the Jane Austen novel Persuasion. He is sure that it would do no good to cut this or that extravagance because they simply don't add up to enough to make a difference in his excessive spending habits, so he throws up his pampered hands and exclaims that there is nothing more that he can do to repair his financial woes.

If the defense budget was monitored and held to close account, it could be cut drastically without lessening our military readiness. The pentagon routinely "misplaces" multiple billions of dollars without so much as a blush, an indicator that they waste as much or more money than they spend. Not to mention the wasteful contracts, the wild expenditures on projects that are ultimately scrapped, and other needless expenditures, such as spending large amounts of money storing excess equipment even as they contract to buy more of the same.

The COLAs for Social Security were considerably lessened by playing with the numbers that determine inflation, removing from the index those things that most people actually spend money for on a regular basis; food, fuel, and housing. On top of that, every annual COLA is accompanied by a hike in Medicare premiums that transfer most of it right back to the government.

[cylindar]

How Republican of you!! What we need to do is to drastically cut the defense budget, get out of Iraq and boost payments for Social security, and Medical programs. This can be done if other really stupid non essential spending is gotten rid of. And there is a lot of it. It would make a big difference.

[TakeSake]

My answers:

1) Higher and higher automatic tax rates to cover the deficit and around 3% of the debt. They get reduced when the deficit goes down and the debt is paid off.

2) An actual "Death Tax" prorated to how much you had and how old you were to determine your portion of the debt. Automatically confiscated from your estate. It's only fair: if you benefited then you should pay.

3) Sell off land. The buyer gets full sovereignty over it. The parcels start at $1000 per square inch.

[jsarets]

The revenues from federal individual income taxes are approximately equal to the interest on our national public debt to the Federal Reserve. Corporate income taxes are approximately equal to the defense budget, and most of the rest is deficit spending. So we're really just making the interest payments and taking on more debt.

[whillice]

Of these "Big Three," Social Security and Medicare/Medicaid have been, up to this point, self-sufficient and actually bring in more money in payroll taxes than they put out. Especially when their solvency is on the line, it makes little sense to balance the budget by cutting these programs dramatically for any other reason than to make them fiscally strong long term.

This leaves the only big program left-- Defense.

Did you know the Pentagon has never successfully passed an audit? Teachers have to make sure their children pass tests or else they can get fired. But the Pentagon? Accountability? Ya right.

I'm glad that the debt is such a huge drain on the budget, too. I'm glad that the conventional wisdom of Ronald Reagan that "the deficits are big enough to take care of themselves" is coming home to roost right at the time when I get to pay for it. Thanks, parents.

Actually, let's DO cut Social Security and Medicare to balance the budget. YOU'RE THE ONES WHO VOTED FOR THESE HUGE DEFICITS, BABY BOOMERS-- YOU PAY FOR IT!!!!! (I hope you all understand that this is a Lewis-Black-type-rant where I'm kidding on the square)

[robinhood1]

Social security was given automatic cost of living increases starting in 1975, when the reported inflation rate was much higher than it is now. A Democrat-controlled Congress passed the law which was signed by a Republican president (Gerald Ford). By putting cost of living increases on auto-pilot, both parties were spared the embarrassment of having to vote on the increases every year. The Baby Boomers did not get to vote for these increases. The older ones had not been in the work force all that long, the younger ones weren't even old enough to vote yet. Baby Boomers were stuck with the tab to pay for these higher benefits for their parents' generation. Generations X and Y will be stuck with even a higher tab, if the Ponzi scheme does not collapse of its own weight first. The recent Prescription Drug Benefit added to Medicare will make the financial problems even worse.

Unfortunately, we the voters do not have the ability to do much if we are upset with the laws our Federal politicians pass. There are no initiative, recall or referendum procedures at the Federal level. If you don't like the fact that the US is keeping tens of thousands of troops in Korea and Japan, you are out of luck. Both major parties support such programs. Both major parties keep voting to fund the war in Iraq.

[LeftRight]

You have lied about one major detail. BOTH social security and medicare would be fine right now were it not for raygun and daddy bush. They have their OWN tax base, they are not affected by actual tax recipts, and they don't pay out the same way! Since they are not drawn by NORMAL tax rates, we can simply stop raiding their trust funds, and we'll be okay in that respect. In fact, there are really only THREE big spending points that can be looked at: The interest on the debt, MEDICAID, and defense. The only one that would really do any GOOD to cut would be defense, although if we were to cut defense we could then spend more money on paying down the debt, which would ALSO reduce that outflow of money!

[mmckinl]

When looking at the two biggies, Medicare and Medicaid, it is clear that what we need is a single payer system for all. If you add to these all government payments for healthcare, local, state and federal , the government now covers more than half of all people, and thee bulk of healthcare payments as the government covers those who are sicker, older and younger. The Insurance companies gouge the middle sweet spot, and leave gaping deductibles and drops in coverage to boot. Add to this 47 million are not covered which means those that are, are picking up the tab for unpaid medical bills.

The US currently spends 15% of GDP on healthcare whereas other G7 countries between 5-9%. With proper implementation single payer could cover all, at less cost .

Before we have the debate on rationing healthcare, we should have the debate on healthcare reform whereby healthcare CEOs do not walk away with a billion dollars upon retirement.

I find these authors reprehensible for their fear mongering and shotgun approach to problems that are approachable and solvable.

[dadw5boys]

THE MONEY GOES TO THE FEDERAL RESERVE.

THE GOVERNMENT WRITES CHECKS PAYABLE IN FEDERAL RESERVE CURRENCY.

DEBT MONEY!

[WIpatriot]

I sent mine out to some place in CA.