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Monday, May 2, 2011

A Breakdown or “Receipt” of How Individuals’ Federal Taxes Are Spent

Margot L. Crandall-Hollick
Analyst in Public Finance

Some Members of Congress have called for and the Obama Administration and several organizations have created a detailed breakdown or “receipt” showing how individuals’ federal tax dollars are spent. Similar to a consumer’s itemized receipt for the goods purchased in a store, a taxpayer receipt would provide information about what government goods and services their tax dollars pay for. Specifically, this receipt would provide taxpayers with detailed information regarding the proportion of their tax payments allocated among major federal government expenditure programs. Certain legislation, the Taxpayer Receipt Act (S. 437 and H.R. 1527) would require the Secretary of the Treasury to provide such a receipt. In addition, this receipt would also include the amount of federal debt and the amount of additional borrowing by the federal government per legal U.S. resident at the end of the fiscal year. This report shows how a tax receipt might be calculated for a representative married couple with wage earnings in 2010 using data from the Office of Management and Budget (OMB) on government spending.

For illustrative purposes, federal tax liability for a typical family is calculated in this report using simplifying assumptions regarding income and family composition. Importantly, the representative married couple’s income is based on the median income for a married couple household in 2009, adjusted for inflation to 2010. This income is assumed to be entirely from wages. The proportion of tax liability allocated to specific government activities is determined using 2010 data on federal government outlays. Specifically, outlays are organized by functional categories (such as defense, income security, general government) as well as more detailed allocations to specific programs or organizations within these broader expenditure categories (e.g., food stamps or the National Science Foundation). These functional categories combine both mandatory and discretionary spending for the same program or expenditures. (For example, the cost of unemployment compensation includes both the actual costs of payments [mandatory] as well as the administrative costs associated with the program [discretionary]).

This analysis explores the breakdown of government spending by programs in order to clarify the allocation of individual’s tax bill; however, the government’s expenditures are not entirely financed by revenues from taxation (including corporate taxation). According to the Congressional Budget Office’s (CBO’s) March 2011 Baseline, in 2010 revenues totaled $2.163 trillion whereas outlays totaled $3.456 trillion, equaling a deficit (the excess of outlays over revenues) of $1.294 trillion financed by borrowing.

Date of Report: April 28, 2011
Number of Pages: 17
Order Number: R41783
Price: $29.95

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