[Taxes]

Where Your Taxes Go.

Before I describe where your tax dollars go, let me direct you to a fun budget simulation Nathan Newman has created. It allows you to go line-by-line through the budget (he has long forms and short forms) and add or subtract from the current allocations. The intent, I believe, is mainly philosophical--we don't really have the luxury of changing a lot of the items in the budget, and most of the items arise from compromise between sharply divided ideological positions. He even has a longer version that allows you to select how you want to spend your money. But it does give you a sense of how divergent US priorities are from your own.

Budget Simulation

(For example, if the US cut its defense budget in half--a move most Americans would describe as catastrophically short-sighted, military spending in the US would still be greater than the next two countries combined.)

So, where do your taxes go? The entire US budget is $2.67 trillion.* The three big ticket items are Social Security ($545 billion), military ($446 billion), and Medicare ($253 billion). If you include non-Medicare health spending (Medicaid, other health programs, research, etc.), all spending on health ($598 billion) is the US's largest single expenditure. These three items account for $1.59 trillion--or 60% of all expenditures.

The fourth most expensive single item? The Bush tax cuts, which go almost exclusively to the top wealth-earners. Those cuts will cost us $295 billion in 2006 alone, almost as much as we will spend on Medicare this year. Knowing that, you think we're adequately serving the nation's interest? (Obviously a rhetorical question.)

Defense
If you use a slightly different filter, however, the defense budget is substantially higher. The figures quoted above don't include veteran obligations ($115 billion) or spending on Iraq and Afghanistan ($112 billion). Nor, obviously, has anything been budgeted for an Iranian invasion. Taken together, all military-related expenditures are actually $673 billion for 2006--the most expensive area of spending, and a full quarter of all spending. (The moral question, of knowing that we each spend weeks of our year earning money to support a military empire, is beyond the scope of a budget discussion--but worth mentioning.)

Tax Cuts
Newman's simulation highlights a dirty big secret about the budget: tax cuts aren't really cuts, they're expenditures. The tax code has two opposing functions: to fund government and to create incentives for certain behavior. The first function is straightforward; to fund the activities of government, the government needs revenues. The only way to get those revenues is taxation.

The second function is different. Government wants to encourage certain behavior, so it creates tax incentives to do so. Modern economics is really based on the notion of incentives--creating a financial carrot attractive enough to cause people to behave in certain ways. So, for example, if you want to encourage carmakers to produce low-emission cars, you could pass a regulation mandating it (as in CAFE standards), or you could create a tax break for people who buy hybrids. The government therefore spends some of its money, in the form of a kickback, to promote hybrids.

Bush's tax cuts were sold as the same thing. The brute (and roundly dismissed) logic of the administration holds that giving rich people money will cause them to spend, which energizes the economy so that everyone gets richer. But even if the logic were good, it's still not a cut--it's an expenditure.

Liberals should relate to the tax cuts this way and try to change the dialogue to reflect that. We have a certain amount of money in the bank, and we can either spend it on richies or on health care. (Or, in the case of the tax cuts, we could borrow money and give it to richies, which is what we're doing.)

If you'd like to see a line-by-line list of all the US expenditures, you can find it here.*
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*You actually have to scroll to the bottom of the page and click the "Find out what the budget is" button. Don't change any of the variable before clicking it, or you'll have simulated numbers.