Federal budget challenge: getting our money’s worthPublished 4:21pm Tuesday, July 27, 2010
In the previous two columns, we took a broad look at the proposed 2010 Federal Budget expenditures and revenues.
I’ve intentionally provided a very broad look without delving into the details because too much detail tends to confuse rather than clarify the big picture. Today’s political pundits like to use detail to confuse you and try to make you believe that 2 plus 2 is not 4.
And on the other side, there are some details that help clarify. One of those details is how the economic benefits from governance stack up against the costs (taxes). First we need to understand that taxes should be viewed as investments that the American people make to give us all a better future.
Again, this is one of those aspects of the political process that can be made complex by the self-serving and well-meaning players in the game.
First we need to recognize that the purpose of governance is primarily economic, not moral. The morality of governance and the foundation for moral governance is only to protect the constitutional rights of individuals and the independent branches of government. It is not there to impose other moral judgments on society or individuals. Religious, environmental and humanity organizations have plenty of freedom to do that through peer pressure and are subsidized by us all because they operate “tax free”.
So when anyone looks at an investment, whether it is for business, purchase of a home, an auto or even an investment in people that you need to make a business successful, we try to place a value on the return we can anticipate. Simply, we want the return or income generated to be more than the investment. It should be the same for our tax investments.
Another point that needs to be made is that there are self-interests in business and governance that can and do skew and distort the value of the investment through manipulation. The key to the manipulation in both worlds is the “ignorance” and “trust” of people involved. The more we the taxpayers know and understand, the better off we are going to be.
So how do we know when our taxes are giving us a positive return or value? First we have to define return or value and agree on what it means. But I think that doing the math on what is spent by each citizen for each program is the place to start.
Let’s stick with the Federal Budget and the categories presented previously to keep it consistent. Also, we need to recognize that allocations for Social Security, Medicare and Medicaid are not the same. The money we pay into those programs just goes in and then back out to the beneficiaries. It’s less of an investment than a national retirement program and is funded to cover those costs.
That’s not saying it isn’t a growing problem that we’ll need to deal with. It’s just that mixing it with the other Federal budget items creates confusion not clarity.
So how does it breakdown? See the chart at the beginning of this column.
Note that I’ve rounded the numbers off to keep it simple and clean so you accountants and other nitpickers out there just chill out and don’t miss the point.
The quick math gives us a general feel for the amount we’re paying for each of the general budget categories. It also shows you what the consensus in the past and currently is regarding how important certain programs are considered to be.
Setting Social Security, Medicare and Medicaid aside, it appears that we think that National Defense is at least nine times more important than any single other line item.
However, it is interesting to note that Total Entitlements are higher than Traditional Infrastructure. Energy is $455 per person, which is by far the largest of the infrastructure expenditures, while Agriculture is the lowest at $33/person. Interesting situation when you consider the fact that agriculture does provide value to our economy and is exported where US energy is not a viable export (except for coal).
The fundamental question about whether we need to increase tax revenues or cut taxes is not answered by this information. But it gives us more clarity on how we as a country have set our priorities on the money that is spent.
I think before answering the question on what tax rates are appropriate, we need to question whether the priorities we’ve developed in the last 50 years are the ones that give us the proper investments.
The current political process and influence that certain groups or entities have are not working in our favor. Our hopes and dreams depend on how well our economy performs because it brings opportunities that give us the privilege of pursuing those hopes and dreams. And the better the economy performs, the less need we have for government-sponsored entitlements and safety nets.
The category of tax investments that form the foundation for value creation is infrastructure and infrastructure is the place where we spend the least. Shouldn’t we be investing our taxes where we create true economic value?