Where Does the Money Go?
Tax Day 2010
SOURCE: AP/Paul Sakuma
Interactive chart: Where Are Your Tax Dollars Going?
Americans paid a lower share of their national income in taxes in 2009 than at any time since 1950. Thanks to the American Recovery and Reinvestment Act, 98 percent of working families got a tax cut this year. The rich, too, have been treated very kindly by the tax code in recent years. The top marginal tax rate on income is fully half of what it was 30 years ago, and the top rate on capital gains is at its lowest point since 1933.
Yet the sheer size of our country and our economy means that the federal government still collects an awful lot of money in tax revenues. Total federal revenues exceeded $2.1 trillion in 2009, and 2010 collections will be up slightly with the economy recovering. So it seems very reasonable to ask, “What does the government do with all that money?”
Most Americans, unfortunately, don’t feel they have a satisfactory answer to this important question. A recent Rasmussen poll asked respondents if they thought that the federal government, “spend[s] taxpayers’ money wisely and carefully.” A whopping 78 percent said no. So it’s not terribly surprising that, even with taxes at historic lows, 62 percent of Americans in a recent Economist/YouGov poll said that they would prefer to deal with budget deficits by reducing spending alone rather than increasing any taxes at all. (Although a recent Quinnipiac poll makes it clear that the public is completely comfortable with raising taxes on the very wealthy).
But, the American public’s disdain for “government spending” only holds up in the abstract. The public is much less willing to pull out the hatchet when asked about specific parts of the federal budget. That same Economist poll gave respondents a list of budget areas and asked them which ones should be cut. Only one area garnered majority support for reductions— foreign aid. And foreign aid makes up less than 2 percent of the federal budget even using the most expansive definition. Even eliminating it completely would have little discernible impact on the federal bottom line.
There was not even one other area aside from foreign aid where support for cuts cracked 30 percent, let alone 50, including everything from science and technology to aid to the poor. Support for cuts to two of the biggest budget items—Social Security and Medicare—didn’t even make it out of the single digits. And lest one think this one poll was an anomaly, recent polls from Quinnipiac and Democracy Corps confirm the overall message: people support the abstract idea of spending reductions, but don’t like actually cutting specific programs.
So how is it that the public is so reluctant to axe any specific part of the budget while simultaneously being so distrustful of government spending? We are quick to condemn the government for wasteful spending, but slow to identify wasteful programs. Perhaps one reason for this disconnect is the complexity and opacity of the federal budget. The trillions of dollars spent by the federal government every year go to hundreds of different purposes, from providing health care for veterans to regulating nuclear power, from maintaining highways to patrolling our borders.
Of course, in a country as large as ours with such a broad array of public needs, it shouldn’t come as too much of a surprise that the federal government’s activities are just as large and wide-ranging. And just because the federal government does a lot does not mean it does those things poorly. Nevertheless, the sheer number of different ways in which federal dollars are spent can lead to confusion, misunderstanding, and mistrust—something that many conservatives have taken gleeful advantage of.
Getting a better sense for where our dollars go can help take some of the sting out of tax day. Did you know, for example, that more than 60 percent of all federal spending goes to just four areas: Social Security, Medicare, Medicaid, and defense? These are all programs that enjoy broad public support. The next largest category of federal spending is unemployment compensation (5.5 percent). And fewer than 20 percent of people want to cut back there. Another sizable chunk of our tax dollars go to pay for veterans’ benefits (3.5 percent), which is the absolute least popular thing to cut according to the Economist poll.
Take a look for yourself at our new interactive tool to explore the federal budget and see exactly where the tax dollars actually go. It might make mailing in that tax return just a little bit easier.
Interactive chart: Where Are Your Tax Dollars Going?
Michael Ettlinger is the Vice President for Economic Policy and Michael Linden is the Associate Director for Tax and Budget Policy at the Center for American Progress.
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