We’re a nation of savvy shoppers, and we expect that details about the products we buy will be readily available to us. Want to know where your pants were made? Look at the label. What about the calorie count for a Big Mac? In many McDonald’s, it’s right up there on the menu. And after making almost any purchase, we are handed a receipt detailing each item we bought, along with the price.
But when it comes to the largest purchase a typical consumer makes in a given year — the amount he or she spends on federal taxes — there’s no detailed record of the transaction that comes with sending that check off to the IRS.
The federal government should explain exactly where each person’s tax money goes. We need a taxpayer receipt.
A receipt would be easy to create, simple to read and — here’s a word you don’t often associate with the Internal Revenue Service — fun. The document we imagine wouldn’t give taxpayers a way to get their money back. But it would show how much you personally spend each year on government programs such as the FBI, NASA and foreign aid, based on their percentage of the federal budget. By breaking out your contributions, it would make abstract government programs concrete.
Here’s how it should work. After filing your taxes, you would receive an itemized receipt, by e-mail if you file electronically or by regular mail if you send in paper forms. The one-page document would cover major items such as defense, Social Security and interest on the debt. It would also include the address of a Web site that would offer more information on all federal spending, from salaries for members of Congress to Pell grants for higher education to the upkeep of national parks.
The cost of producing this receipt would be a relative bargain. We estimate that the IRS would have to spend about $15 million to mail the receipts to taxpayers. (Two of three households file electronically, so their e-receipts wouldn’t cost much to send.) There would be some costs associated with maintaining the Web site, but that’s a small investment for a very worthy goal: clearing up confusion about the federal budget.
According to a recent University of Maryland poll, Americans on average believe that one-fourth of all federal spending goes to foreign aid. With a tax receipt, a typical middle-class family with an income of $50,000 and $6,883 in federal income taxes and payroll taxes would see that, in reality, only $42.80, or 0.6 percent, of their taxes go to foreign aid.
Polling from Third Way, a center-left think tank, has shown that three-quarters of the electorate believes that the budget deficit can be tamed without touching Social Security or Medicare. With the receipt, that same typical taxpayer would see that the nation’s two largest entitlement programs account for $2,180.48 of his or her annual tax bill. (This amount is different from the payroll taxes that person would see on a pay stub. The receipt would show the cost of those two programs as a proportion of the federal budget.) By itself, a receipt wouldn’t suggest solutions. But it would ground the political debate in hard numbers.
We have created an online calculator to show how the receipt would work, available at www.thirdway.org/taxreceipt. Let’s say that family with $6,883 in income and payroll taxes wants to know how much of that goes to, for instance, the Department of Veterans Affairs. We determine the department’s budget as a percentage of the entire federal budget ($124.1 billion out of $3.7 trillion, or 3.3 percent) and multiply the percentage by taxes paid, to get $229.55.
We’ve discussed this idea on Capitol Hill and have found that it attracts bipartisan interest. Sens. Bill Nelson (D-Fla.), Scott Brown (R-Mass.) and Rep. Jim McDermott (D-Wash.) have introduced legislation that would create a taxpayer receipt. President Obama has endorsed the idea of showing taxpayers where their money goes.
For Democrats, the receipt would be a tool to connect the public with what they are getting out of government. Funding for programs that invest in children, education, energy, the environment, transportation, innovation and housing might escape the meat grinder if taxpaying citizens had a better idea of how much — and, truth be told, how little — such programs actually cost. For their part, Republicans would find an effective tool to spotlight government profligacy and rising debt.
Ultimately, a taxpayer receipt would be a political Rorschach test. In it, people would see what they already believe is right or wrong about government spending. But with a receipt in hand, they would have the correct facts and figures as they debate policy preferences. And that might even spur on affordable, effective government, which all good consumers should like.
Scholars have long explored the “identifiable victim effect,” a concept that holds that knowing more about where your money goes increases your satisfaction about spending it. A taxpayer receipt won’t reduce anyone’s tax burden. But it might reduce the burden of paying taxes.
David B. Kendall is the senior fellow for health and fiscal policy at Third Way, a center-left think tank. Ethan Porter is a contributing editor at Democracy: A Journal of Ideas. An article elaborating on this proposal is forthcoming in Democracy.