Taxing the mind: Where our dollars go

April 15 — income tax day, the day we reckon up with Uncle Sam. How does Uncle S. spend the taxes we send to D.C.? Frankly, it’s hard to get a handle on tens and hundreds of billions of dollars.

I think of everything we produce in the United States as being a big pie. Picturing the pie as a clock, federal spending is a slice with one cut at 12 o’clock and the other cut at 2:30. Fifty years ago the federal slice went only from 12 to 2:15.

So in one sense, the amount we share with the government hasn’t much changed. But of course, today’s "pie," the total amount the nation produces, is enormously larger than it was a half century ago. On a per person basis (and adjusting for inflation, of course) we’ve roughly tripled output since 1954.

So while it’s true that the share taken by the federal slice is about the same, it’s worth remembering that both the pie and the federal slice are three times the size they used to be.

The feds don’t eat pie themselves so much as they divvy up their piece and feed it back to us in smaller portions. Looking at the 1954 noon-to-2:15 federal slice, the part from noon to 1:30 went for national defense. Today, the defense slice only runs from noon to 12:30, a much thinner slice of a much larger pie.

The smaller slice and larger pie roughly balance, so defense spending per person is about the same in 2004 as it was in 1954.

The piece of the budget that’s really been super-sized over the years is Social Security and Medicare.

Today, paying for Social Security and Medicare runs the next slice from 12:30 to 1:15, a 45-minute-sized portion about half again as big as national defense. Back in 1954 Social Security was only a six minute serving. And back in 1954 Medicare didn’t even exist. Social Security and Medicare are definitely the big change in how our tax money gets eaten.

The federal government has always borrowed and always paid interest on its debt. Both now and half a century back, federal interest payments on the national debt amount to a 10-minute sized slice. On the one hand, that’s not a huge share. On the other hand, it’s a big pie so the chunk is pretty big, too.

What’s worrisome is that our interest payments are headed upward. The Bush administration forecasts they’ll rise 15 to 20 percent a year for the foreseeable future.

My prediction, if we don’t get the deficit under control, is that in five years we’ll double or triple what we’re now paying in interest. A 20-minute or half-hour slice means that something else big is going to have to give way in the budget. Remember that you heard it here first and that you didn’t like it when you heard it.

The other big change in spending comes from the health and income security categories. (Military retirement pay, unemployment compensation and welfare payments all come under "income security.") This pie slice has grown from under 10 minutes to more than half an hour.

The rest of the federal pie slice goes for lots of small and medium items. We spend some on international affairs, some on science (mostly NASA), on energy, natural resources, agriculture, transportation, education and training and veterans benefits. The "everything else" category accounts for a 20-minute slice.

Of course, it’s really not pie that we send to D.C., it’s money. On Tax Day I think of all the things I could buy for my family if I got to keep more of my tax dollars.

Most of the rest of the year I find myself asking why the government doesn’t take care of this problem or that problem. There’s no point in saying that the government should spend less unless we’re willing to mark which items should be cut.

There’s no point in asking for more services unless I’m willing to pay more taxes.

Dick Startz is Castor Professor of Economics and Davis Distinguished Scholar at the University of Washington. He can be reached at

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