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Issue #20, Spring 2011
Seeing Where the Money Went
Rethinking Taxes: Proud to Pay
Ethan Porter and David Kendall
To read the other essays in the Rethinking Taxes symposium, click here.
f taxes, in the words of Oliver Wendell Holmes, are the price we pay for civilized society, what are we to make of the ever louder, ever more powerful anti-tax brigades who see opposition to taxation—any taxation—as patriotic obligation? As progressives, we disagree with them. We believe that society has a price, and it’s one we’re willing to pay. But no matter how tempting it may be, we can’t stubbornly hold fast to our position without acknowledging that there is something to the anti-taxers’ critique. The tax system is arcane and needlessly complex, a Byzantine maze that even the Treasury secretary had trouble navigating. As a result, government has become akin to a distant relative—one whom you hardly know, who shows up routinely with his hand outstretched, asking for a donation.
But while the anti-taxers have diagnosed the correct problem, they’ve prescribed the wrong solution. Rather than simply demanding tax cuts—or hikes, for that matter—we can work to open the tax system up, to show taxpayers how it works and where their money goes. In the process, we might be able to change the discussion around taxing and spending, making it less ideological and more relevant to the challenges of our day. Presumably, Americans will never like paying their taxes. But with the right policy proposals—and with their implementation—they might not despise doing so.
The authors of this piece have discussed one such proposal in the past (“Can’t Wait ’Til Tax Day!,”​Democracy​, and “A Taxpayer Receipt,” Third Way Idea Brief). We believe that the Internal Revenue Service (IRS) should release personalized receipts to every individual taxpayer. With this article, we intend to fill in the details, to show how and why our proposal should become reality. The receipt would be straightforward enough: Individuals would receive them each year they file. This receipt would display services rendered and break out costs depending on the amount you paid. For simplicity’s sake, the receipt would be no more than a page long. Additional details would be available on an IRS website, the address of which would be located at the bottom of the receipt.
The reasoning behind such a receipt is equally straightforward. The businesses with which Americans interact everyday provide receipts for a wide array of transactions; some even offer to eliminate the charges if their employees forget to give you one. No matter if you’re buying coffee to get through the morning, or a new minivan to take the kids to soccer practice, the logic is the same. The receipt proves what you purchased and how much you paid for it. It tells you bluntly: You paid X, and you got Y. Clear as a bell.
Yet the government gives people no such receipt for the many services it provides them, leaving its citizens in the dark about what it does. A well-structured, well-designed receipt would clarify to taxpayers where their money is going, disabuse citizens of many popular misconceptions about taxing and spending, and help restore a modicum of trust between citizens and their government. As the IRS’s official taxpayer advocate, Nina E. Olson, recently said in a report that recommends Congress adopt the receipt, it “would help make taxpayers more aware of the connection between the taxes they pay and the benefits they receive.”
The Receipt
The receipt displayed below offers an approximation of how it might look. (Click here for a PDF version.)
To create the receipt, we had to rely on only basic math. Displayed is each item’s percentage of the federal budget multiplied by the amount a person pays in taxes. For example, in fiscal year 2010, the Department of Veterans Affairs had a budget of $124.6 billion out of a total federal budget of $3.721 trillion, or 3.3478 percent. A median household pays $6,883 in income and FICA taxes. Calculating 3.3478 percent of $6,883 yields $230.43—the amount a median household paid in taxes that went to fund the VA.
The receipt would use cash accounting rules to keep it simple. As such, it would reflect only the spending in the government’s budget for a given year. It would not list the amount of the deficit and debt, but it would list annual interest payments on the debt. Similarly, it would not show the fiscal obligations for future Social Security payments, but rather the current payments for Social Security. Trust funds for programs like Social Security and interstate highways would be treated as having a single, aggregate source of revenue despite their dedicated taxes. That is consistent with cash accounting rules and the imperative to keep the receipt both simple and informative. The receipt would also show programs that are putting money back in taxpayers’ pockets, such as the 2008 bank bailout, which has been returning money to the government as banks pay back the taxpayer funds used to rescue them.
The key to a successful receipt is making it customer-friendly. This means highlighting well-known programs and agencies such as Social Security and the VA. It also means avoiding jargon; phrases like “domestic discretionary spending” are part of the lingua franca of budget wonks, but don’t mean a thing to most people. As we discovered while designing the model receipt in this article, conflicts between depth and length are inevitable. Anything more than one page will be overwhelming, but anything too compact will fail to be sufficiently illuminating. Our goal is not simply to replicate the entire federal budget for every taxpayer, but to distill it into useful information. The amount paid for specific agencies is more interesting than broad categories (e.g., the FBI vs. law enforcement). But listing only specific items will produce an excessively large “other” category. No one will trust a receipt that appears to be obscuring government spending.
TAGS: Taxes
ISSUE #20, SPRING 2011
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Jeff Harper:
Great idea! Kudos! Kudos! Bravo!

But why not give it a try in the private-sector and or non-profit sector with a broad-based political coalition first. Then perhaps the public-sector (e.g. IRS, OMB, CBO) will get around to picking up the baton shortly thereafter, at which point they can reach some households for which the private-sector has less capability.
Back in the mid-90s when I was working on my first edition of Penny Mills Checkbook, I remember being concerned that all of my budget research efforts would be nullified with the release of OMBs (Office of Management and Budget) Citizen's Guide to the Federal Budget.
A couple of minutes after flipping it open my concerns were allayed, this particular edition was nauseatingly politicized as to the level of welfare spending. Later editions were much better, quite good in fact up until their publication was discontinued during the Bush years. But I doubt that one-tenth of one percent of the American public were even aware as to the existence of the Citizen's Guide. So the IRS approach you suggest is a far superior public-sector approach.
But again, I encourage your organization to reach across the political spectrum in order to produce such a product, instead of waiting on the federal government to do so.
You know we can do better than Congress or any federal agency. Keep up the good work!
Jeff Harper
Author- Penny Mills Checkbook
Mar 21, 2011, 10:11 PM
What is needed at least as badly, if not more, is a breakdown of subsidies to corporations. Taxpayers need a yearly reminder how many corporations may almost no tax (like GE) while receiving billions in subsidies.
Mar 29, 2011, 12:00 PM
Edwin Ramos:
I agree that as tax payers we are due an explanation of where our dollars are being spent and this idea is a great start. As for the categories, I agree that the politicians will use it as a political tool and should resemble the sample you provide. I would also like to see a category for pork projects.
Mar 30, 2011, 9:59 AM
Instead of expecting partisan lawmakers to agree on non-partisan category labels, maybe there should be three columns of labels. Alongside the generic term for each dollar amount, the parties could insert their preferred Orwellian version, and taxpayers could take their pick.
Apr 15, 2011, 5:12 PM
Instead of the government telling us where our (in this case) $7k was spent. Why can't we have check boxes on our tax return allowing us to tell the government where we want it spent?
Apr 16, 2011, 5:18 PM
Tom :
I enjoyed discovering this data as a pie chart in the Arizona Republic. What made me pursue things further was to ask if I was missing something with regards to federal retirement funding. Is it depicted here? Have David and Ethan written anything with regards to the burden this is growing to be. And for such little time put in for full funding (or at least that is my understanding).
Apr 17, 2011, 6:49 PM
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Ethan Porter and David Kendall are, respectively, a contributing editor at Democracy: A Journal of Ideas and senior fellow for health and fiscal policy at Third Way.
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