How Taxpayer Receipts Could Improve the Debate Over Spending
The U.S. has hit its debt ceiling, and Treasury Secretary Janet Yellen has enacted “extraordinary measures” to keep the government out of default—buying Congress a few months to come up with a solution. Republicans have vowed to vote to raise the debt ceiling only in return for spending cuts. Most have been reluctant to identify specific cuts, and some have said they would oppose cuts to entitlements or defense spending, leaving little actual room for meaningful reductions.
One factor that contributes to this problem is that Americans generally do not know how their tax money is spent. Worse, they think they know: Polls have shown that Americans consistently overestimate foreign aid spending, with the average respondent guessing that the U.S. spends 25 percent or more of its tax revenue on foreign aid. (The correct answer is 1 percent.) American voters also believe that children, working-age adults, and seniors receive the same share of federal spending, whereas the reality is that seniors receive more than half. More recently, a talking point on the right is that the U.S. should balance the budget rather than provide aid to Ukraine. But the U.S. allotted only $50 billion for Ukraine in 2022, compared to a $1.375 trillion deficit the same year.
This lack of understanding has a great impact on the political debate. When voters don’t understand how their tax money is spent, their fiscal political priorities become misguided. This influences their voting, encouraging them to elect representatives who champion symbolic sending cuts rather than structural reforms. Voters who believe that foreign aid, or Ukraine assistance, or education make up such a great portion of federal spending that the budget could be balanced if they were cut, are very unlikely to support the kind of entitlement spending reforms that will be necessary to balance the budget long-term.
What if the IRS sent back a receipt to each taxpayer, showing how the tax money they personally have paid over the year has been spent? Here’s how it would work. The receipt would show much an individual taxpayer had contributed monthly and annually to each federal spending area. Since the government already knows how much each person has paid in taxes, and how much it spends on different areas, creating this receipt is actually rather straightforward. Suppose a taxpayer has paid $10,000 in federal taxes (including payroll taxes) over the year. This taxpayer’s receipt might look like this: