Tax receipt shows how little we pay to Uncle Sam

Another Tax Day approaches and another year of circuitous, partisan bickering about federal taxes and spending is sure to follow.
It’s not logical to hold a national debate on our relative tax burden when most people do not know how much they pay each year to Uncle Sam. In fact, much of the public is way off the mark when talking taxes, in part due to radio talk-show hosts who spout ridiculous claims about tax bills of 50 or even 60 percent.

I just finished my taxes and my “effective” tax rate for 2011 was 6 percent. That’s the true tax rate – after all exemptions, deductions and credits. Despite all the political rhetoric, for most middle class families, their effective rate is below 10 percent, and many are closer to the 5 percent range.

(Anyone can quickly calculate their effective rate by dividing the amount on Line 35 of their 1040 form by Line 15 – then just move the decimal point two places to the right.)

Obviously, the federal income tax is not the only government levy paid by Americans. But the Tax Foundation, a longtime conservative group, has calculated that all the federal, state and local taxes and fees paid by the average Michigan worker equates to 28 percent of their annual income.
Frankly, that number usually astounds people, especially when they realize that their 28 percent pays for everything from police and fire protection to schools and universities to the Defense Department and Medicare/Social Security.

To make that point, Third Way, a centrist political organization, devised an interesting concept – the tax receipt.

For the past year, Third Way has pushed for the IRS to issue federal income tax receipts that would show each of us where our tax dollars go. A few lawmakers on Capitol Hill support the idea.
On their website, Thirdway.org, the nonprofit group offers a tax receipt calculator. Plug in that amount on Line 35 of your 1040, add the FICA (Social Security and Medicare) payroll tax total on your W-2 form, and watch what happens. Make sure you click on “View All.”

I entered a fairly typical federal tax bill of $7,000 for a family making $50,000 and I found, as expected, that the big ticket items are Social Security and the Defense Department. They each cost this family about $1,400 a year. Medicare ($940), “Low-income Assistance” ($640), Medicaid ($530) and Veteran’s Affairs ($250) are the other expensive items on the family’s tax receipt.

What may come to a surprise to many taxpayers is how little they pay for so many federal programs. The spending item that is often wildly exaggerated is foreign aid. One recent poll showed the majority of Americans think Washington spends one-fourth of the federal budget on foreign aid. The true figure is less than 1 percent.
The $50,000 family I created for the tax receipt calculator pays $42 a year for foreign aid.

The tax receipt calculator puts dozens of federal programs in perspective for each person who uses it. For example, many Americans may balk at the idea of funding the Global AIDS Initiative. Others may say that it’s irresponsible not to pay 18 cents – yes, 18 cents – per year to help eradicate such a deadly scourge.

Here are some highlights of the $50,000 family’s tax receipt:

• In addition to foreign aid, federal programs that cost the family less than $1 a week include: Customs and Border Protection, mass transit, special education, Centers for Disease Control (CDC), National Forest Service, FBI, foster care and adoption, NASA, the entire Agriculture Department, employment and training programs, the entire worldwide U.S. diplomatic corps, National Science Foundation, all Native American programs, and the entire Environmental Protection Agency (EPA).

• Programs for which the family pays less than $1 per month include: the nation’s federal prosecutors, anti-terrorism and bioterrorism corps, Amtrak, vocational and adult education, Food and Drug Administration (FDA), National Park Service, Federal employees’ and retirees health benefits, child support enforcement, housing for elderly and handicapped, Occupational Safety and Health Administration (OSHA), United Nations (UN) assistance, National Weather Service, and House and Senate staff and operations.

• Those services that carry a price tag of less than $1 per year include: Consumer Product Safety Commission, truck safety, White House operations, freight railroad oversight, chemical and hazardous waste safety, African Development Foundation, Council on Homelessness, Mine Safety and Health Administration, Council on Disabilities (one cent annually), Nuclear Regulatory Commission, efficient vehicle development, and salaries and benefits for members of Congress.

The beauty of Third Way’s calculator is that it provides an accurate, personal account of each taxpayer’s obligations, and it links to detailed information about each department, agency and program.
In the process, it instantly begins setting priorities on taxes and spending in the minds of each user, which will hopefully influence their thinking as voters. Essentially, it clarifies the national debate about fiscal policy by providing facts, figures and hard realities.

Third Way’s experts have estimated that the IRS could provide tax receipts to every taxpayer – either by mail or electronically – at a total annual cost of about $15 million.

I’m not sure how many cents that would cost me per week. But I’m ready to pay it.