How Much Does $100 Billion in Federal Spending Cost You?
George Shultz, secretary of state in the early 1980s, was also a first-rate economist. As a good economist, he put out a press release showing how little the average taxpaying household paid for aid to El Salvador. As I recall, it was about $34. (I can’t find a source.) Shultz seemed to think that $34 was a small number. But he quit talking about it pretty quickly. My guess is that he got a lot of feedback from average Americans expressing outrage at paying $34 a year for something that they valued less than that.
Steven E. Rhoads, in The Economist’s View of the World, points out what seems to be a constant in opinion polls. When people are asked whether they want the government to do something, a majority says yes. But if they are asked whether they want the government to do that same thing if it means their taxes will increase, that majority shrinks to a minority. There’s a lesson here: If you want to make a case against a government program or an increased government expenditure, tell people what that will cost an average family.
This is from David R. Henderson, “How Much Does $100 Billion in Federal Spending Cost You?” TaxBytes, Institute for Policy Innovation, November 22, 2023.
You might not be average. Based on a Tax Foundation study using 2019 data, I calculated high-income households, those in the top 20 percent of the income distribution, paid about 65 percent of all the tax revenue the feds collected. To be in the top quintile that year, you needed to have an income of $125,748 or more.
Assume for simplicity that these numbers, adjusted for inflation, are about the same today. Also, I’ll assume, even though I know it’s false, that this $100 billion will be paid entirely out of taxes rather than new debt. It’s not as bad an assumption as it looks. To the extent it’s paid out of new debt and to the extent future taxes pay off that debt, based on a progressive tax structure such as the one we have now, it’s a pretty good assumption.
So, the top quintile would pay 65 percent of $100 billion, which is $65 billion. That works out to $2,481 per top-quintile family.
Read the whole thing, which is not long. I’ve actually quoted over half of it here.
Caveat: There are a lot of people in the top quintile whose share of the $100 billion is well below $2,481, probably more like $1,500 to $1,800. The reason is that the $2,481 is an average and that average is high because of people in the top 5% who are paying much more than $2,481. Unfortunately, with the tight word constraint I’m given at IPI, I didn’t have room for that caveat.