The voices of Tax Policy Center's researchers and staff
Now that you’re done filling out your 1040, the White House wants you to know where your tax dollars are going. Its Federal Taxpayer Receipt is, in concept, a great idea. But it also has some odd bits worthy of note.
First, the good news: At a time when much of the fiscal debate in the U.S. is based on misinformation, urban myth, and outright lies, it is nothing but helpful for people to know exactly how their tax dollars are spent. For instance, it is useful to see that the deficit can’t be eliminated by ending foreign aid, which represents less than 2 percent of all federal spending. It is similarly valuable for folks to learn that half of their income tax dollars are spent on just two broad sets of programs-- national defense and health care—and another 21 percent is spent on what might be called “safety net” programs for low-income people. More than 7 percent is spent on interest on the debt.
Especially helpful: If you plug in how much tax you pay, you’ll see how many income tax dollars you contribute to various government programs. So, for instance, if you pay about $3,900 in income tax, you’ll learn that about $1,000 goes to defense, while about $30 goes to college student aid.
Unfortunately, thanks to some of the choices the White House made, the calculator is a more than a bit misleading.
To start, by showing how much of your tax payment goes to each government program, the calculator leaves out a huge piece of the story: Taxes pay for only about two-thirds of federal spending. The rest is borrowed.
Another curious choice: While the tool asks how much you pay in Social Security and Medicare taxes, it treats these programs in an overly simplistic way. For instance, it implies your Medicare payroll tax pays for all of Part A hospital insurance and your income taxes pay for all of Parts B and D (services such doctor visits and drug coverage). But this ignores all of the financing complexities of Medicare, including that the program is funded through a mix of income taxes, payroll taxes, state contributions, and premiums.
I also wish the calculator had included the employer share of payroll taxes. While on paper, your boss pays half the tax, he is using your money. And while they represent relatively small amounts of revenue, it would have been nice if the calculator acknowledged that some of government is paid for by corporate and excise taxes, and not just personal income and payroll taxes.
The calculator also includes as spending low-income subsidies that are run through the revenue code, such as the earned income and child tax credits. This properly tracks budget accounting rules for what seems to be the refundable portion of those credits. But the tool misleads by not recognizing hundreds of billions of dollars worth of other subsidies that are operated through the tax code.
One last odd bit of business: If you don’t know how much you paid in tax, the calculator includes some default choices based on income. However, the highest of those income levels is just $80,000, and the only option for households with no dependants is for those making $25,000.
Having watched my colleagues Bob Williams, Rachel Johnson, and Doug Murray build the Tax Policy Center’s tax calculator, I know such an exercise involves many arbitrary choices and necessary simplification. Still, some of the White House choices baffle me.
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