Tuesday, April 17, 2012

My Tax Dollar Return on Investment

About a month before the income tax filing deadline the media begins their perennial rap on high taxes, government waste and the complexity of income tax forms.  One of the themes is “where you tax dollars go.”  For example, the Center on Budget and Policy Priorities is often quoted.  The CBPP has a nice little pie chart that shows how federal tax collections are spent. 

Of course, the usual theme is how much money is being wasted on the freeloading poor who reject work and real paychecks for the sake of collecting unemployment benefits and welfare.  Fox News recently aired an expose on unemployment beneifts, suggesting the unemployment program is rife with fraud  Apparently, it is an entirely different matter that there is a sizeable expenditure of money on freeloading politicians in Congress who reject work and real paychecks for the sake of collecting government paychecks and those very handsome health insurance benefits.  A recent op-ed in the usually conservative New York Times suggests members of Congress are coming under increasing scrutiny.

Both arguments are self-serving and distort the facts.  I just paid a hefty sum for taxes today.  The question I ask is what return am I getting on my tax dollar investment? 

As demonstrated by CBPP pie chart below, the three major “take care of every American” categories, use up $0.54 for every tax dollar collected.  Twenty cents on the dollar is used for Social Security payments.  I am good with that.  Otherwise there would be even more old people than ever blocking my way to the subway – pleading with their sad eyes and little cups for a handout.  Same with the $0.13 for each of my tax dollars that is going to the Safety Net Programs  -  the unemployed are such a nuisance holding the door at the bank and asking for tips.  I cannot think of a more efficient or objective way of providing for the weak and unfortunate than Social Security and Unemployment Benefits.  Even adding the $0.21 that puts medicine into the mouths of older people and children through Medicare and Medicaid, I am still on board.    

It sounds like a lot of money, so why am I so sanguine about where my federal tax dollars go.  Plain and simple, I have seen no alternative that would give me the same social benefit for a lower cost. 

What am I getting when I give $1.00 to the Federal Government?  Given the Internal Revenue Service (IRS) budget of $12.2 billion in FY11, cost of collections was approximately 0.5% of the $2,415 trillion collected in 2010  -  that is a half penny for each tax dollar.  That means $0.995 goes to programs in the Federal Budget. 

Now a look at the cost of administration in the largest social program  -  Social Security.  The Department of Social Security operated on a budget of $11.5 billion in FY11, serving 66.5 beneficiaries (some may get more than one benefit) with benefits totaling $873 billion.  That means it cost a bit over a penny to handle each dollar of social benefits, plus provide some informational services to a several thousand others.

So what this all boils down to is that when I can give $1.00 to the Federal Government, I know that about $0.52 gets into the hands of Americans who need help  -  or at least people who claim they need help and $0.02 go to the bureaucrats who collect the money and run the programs. 

As the Fox News report illustrated, fraudulent claims are usually what bring the Social Service programs into the cross hairs of tax payers.  This is mostly because the fraud numbers seem so large.  For example a recent USA Today article tweeked the Department of Social Security for sending out $2.4 billion in social security, disability and survivor benefits in FY2010 that were later considered in excess of the proper payment.  That does seem like an excessive number.  Yet it was only 0.4% of total payments made in that fiscal year.  That means the Department had a 99.6% success rate in calculating and distributing payments.  Those handling the Supplemental Social Security (SSI) payments did not have as good track record, goofing up about 10% of its payments in the FY10 budget that were later considered improper.  Just the same, a 90% success rate is a good place to start making improvements.

If you still begrudge the Federal Government the $0.54 out of your tax dollar for Social Services, consider the private sector is an alternative.  Could the private sector collect enough money to take care of everybody?  Would a non-profit do a better job of sifting through the liars and cheaters to provide help to those who really need it?  Would the less fortunate among our neighbors end up with a roof over their heads? health care?

As bungling as the Federal Government might seem to be, private sector fund raising and program administration are no match.  There is a wide range of performance with some non-profits using only $0.10 to raise $1.00 and others spending as much as $0.50 to collect a buck.  That is on top of program administration costs.

What is more, private sector solutions are largely a localized solution and subject to the peculiarities of one dogma or another.  The unfortunate individual who could not pass the “morality” test of one church or another, or the “politically correct profile” of one social group or another, would end up begging on the street corner.  There goes my commute!  Local, private arrangements might also give rise to jurisdictional exportation  -  “give this poor soul a one-way bus ticket to such and such program in another state where he cannot bother us.”  I suspect it could be a free-for-all. 

I just sent away my last tax payment for 2011 and, for at least half the Federal Budget  -  the half that is the least popular  -  I think I am getting a good return for my money.  



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