Tuesday, February 09, 2010

Pie chart showing Obama's proposed FY 2011 budget

I did my federal taxes last night. Once again our contribution to the federal government through income taxes will be around $1,500. That doesn't seem like much. Anywhere, here is where the money goes if Obama's proposed FY 2011 budget is approved.


Anonymous said...

$1,500 is your complete federal tax bill? That would mean you made ~$ 5800? Anyway the budget is roughly twice as big as we as a people can afford regardless of anyone's politics and regardless how were spending the money. We don't need to raise the debt limit, we need to reduce the budget.

Huge Cheerleaders said...

$5800? What are you talking about? Do you know anything about taxes? If you make $5800, you pay zero in federal taxes. In fact if your married, which I am assuming the Hadley-Ives family is, you pay zero if your income is 12,800. If you itemize deductions, have any kids, own a home, etc you can make much more than that and still pay zero.

Eric Hadley-Ives said...

The Anonymous commentator is correct, our household had gross income of somewhere between $53,000 and $54,000 in 2009. (I assume the anonymous person posting intended to guess $58,000, and not $5,800, which is such a ridiculously low and ignorant guess that it must be simply a matter of omitting a zero, in which case it is an astute and informed guess).

As to the idea that the budget is twice as big as we can afford, regardless of politics, I disagree. I think sane political positions in the United States can suggest that the federal budget ought to account for somewhere between 20% and 40% of the economy. Total public spending, including federal, tribal, state, and local government expenditure, can probably range between 30% (a Libertarian dream) and 60% (a Democratic Socialist dream). If the public sector is much larger than this, we'll probably slow down the economy too much. If the public sector is smaller than this, we won't have enough public funding to support even the most basic and essential government services.

The Obama budget does not exceed what I define as within a reasonable range. It is perhaps unreasonable to spend so much when taxes are so low, as this produces a deficit. But, I believe in Keynesian economics (I think it's an empirically verifiable fact that extra government spending stimulates economies suffering low growth and high unemployment), so I don't mind large deficits during times when the economy is coming out of a recession.

I agree that the budget levels (as a percent of the GDP) were "too high" in FY 2009 and FY 2010 compared to where they ought to be in normal years, given our level of taxation, but this is because of some special stimulus funding in those years.

The idea that we "need to reduce the budget" is based on the idea that human welfare will be improved if we have less of the economy controlled by the public (government) through taxation and government spending. This is usually based on the idea that society will flourish, freedom will be greater, and wealth will be rapidly created as we shrink government expenditure and taxation and leave more wealth in the hands of private individuals and corporations. I would agree with this position if there was empirical evidence to support it when considering levels of taxation and public expenditure now experienced in the United States. But, there isn't such evidence. On the contrary, I think studies of freedom, personal flourishing, justice, wealth creation, economic growth, and so forth, suggests that slightly higher taxes and constant spending (adjusted for inflation) would be the best way to achieve a better society. I would reallocate existing spending so more went to scientific (especially medical) research and education, and less went to defense, and I'd reform our medical care system and Social Security system slightly to reduce costs there, but otherwise, I'm fairly satisfied with the size of the Federal government and its programs, and I believe polls of American citizens asking them about specific programs (instead of abstract ideas about cutting the government in general) show that most Americans would, if faced with specific questions about where to cut, agree with me.

If total tax burdens were over 50%, I would agree with the anonymous commentator. But for a household living with an income close to the median household income, as we do, our tax burden is considerably below 50% (it's around 15%), and I don't feel that taxes are an excessive burden compared to the benefits our society is getting from public sector.

- Eric

Anonymous said...

With all due respect, you are VASTLY underestimating how much you're paying in taxes. If you made $53,000 in 2010, your federal income tax bill alone would be $7,112. $9,431 if you're not filing jointly. Perhaps less with deductions, but I'd be impressed if you managed to get it down to $1,500. I think that's the point Anonymous was making. My guess is you owed an ADDITIONAL $1,500 beyond what was already taken out of your paychecks.

As for your other comments... You realize that all government spending is taken out of the very economy it is trying to "stimulate", right? If I took $500 from you, and then gave you $400 back (taking out $100 for overhead), would you consider that stimulus? What about if I took $500 and gave you back $1000 plus a debt of $500? Would you consider that a good thing? lol

Think about it.

Eric Hadley-Ives said...

An anonymous commentator suggests I'm a vastly underreporting our income taxes. No. I'm not. I'm a state employee who does not pay into Social Security, and instead I put money into a state pension program. I'm not counting my state retirement pension as a "tax", and this is reducing my total tax burden report. But frankly, my "privatized" (self-managed) state retirement pension is a disaster. I would much, much rather pay into Social Security. In fact, I cannot continue in my state employment if I ever want to retire, and will have to take another job in time for me to get 20-25 years into my second career in order to get an actual pension.

Okay, if I did add in the state pension contributions to total tax burden, I'd be at a total tax burden of about 21%, rather than 14.5%.

I hope that clarifies the issue. Incidentally, I have scans of my actual 1040 forms here. In 2008 our adjusted gross household income was $52,247, and our federal income tax burden was $1,206. In 2007 our adjusted gross household income was $54,758, and we paid $1,496 in federal income taxes. I'm not under-reporting. We're married, have two children dependents, own our home, and so forth.

The anonymous poster points out that it is inefficient to take $500 from me in taxes and give me back $400 in benefits after the processing costs of $100 are taken by the government. Actually, there is a multiplier effect when the government taxes and spends. That is, the $400 the government spends money upon (law enforcement, education, research, infrastructure, defense, regulation, etc.) creates more opportunities for wealth-creation, and the money is earned by contractors or workers who provide goods and services that tend to stimulate the economy. Likewise the $100 "lost" when the government spends less than it takes in through taxes because of overhead is in fact paid out to middle-class federal workers, who then stimulate their local economies with their income. If money remains in the hands of those who earn it (most money is earned by a top 10% or 15% of income-earners, and they pay most of the taxes as well), the sorts of things they would spend money on would tend to stimulate the economy far less than the spending done by the public (the government).

Think of it this way, spending $1 million to educate 100 school children pays for school employee salaries, education equipment, and so forth, and this tends to stimulate spending and economic growth more than the average way a private wealthy individual would invest or spend $1 million. For example, some portion of wealthy individuals would spend that $1 million buying imported luxuries, or investing in multinationals that move jobs abroad and shelter their profits in tax-free off-shore banks. Sure, some wealthy people spend in a way that greatly stimulates the American economy, and if on average wealthy Americans did that, and private individual spending had as high a multiplier effect as government spending, that would also tend to strengthen the argument to reduce taxation and spending. But so far, research indicates that public spending (government spending) tends to have a multiplier effect of something like $1.80 for every $1.00 spent, and if those tax dollars remained in the hands of those who paid the taxes, their spending would have a significantly lower multiplier effect.

- Eric