The U.S. government has provided an interesting tool1 that tries to show you where your tax dollars are spent. You just put in the amount of Social Security, Medicare, and income taxes you paid, and it shows how much of that money will go to different government programs and expenditures.
Over at Econlog Arnold Kling points out2 that for most of us, the calculator makes it look like most we get a bargain in government programs and benefits for a relatively small amount of taxes paid. Kling suggests a more interesting calculator would be one that calculates how much money the government would have if everyone paid the same amount of taxes that you pay.
Progressive taxation means that people with higher incomes also pay higher tax rates3 About 150 million individuals file tax returns every year.4 The budget for 2010 estimated that total government revenue would be $2.381 trillion. This averages out to about $15,900 in revenue for each tax return filed. If you paid less than that in federal taxes (including Social Security, Medicare, and income taxes) this year, then that means you’re getting a good deal because someone else is paying more.5 Now, there are good justifications for having a progressive taxation system. The marginal utility of each additional dollar decreases as a person’s income increases. Moreover, the wealthy owe their good fortune to being able to live and work in the United States, so it makes sense that they give something back.
I’m not trying to argue for or against a progressive tax system. I just think it is interesting for each of us to realize how our tax system is structured and how our taxes compare to what other Americans pay.
To that end, I’ve accepted Arnold Kling’s invitation and I’ve created a very basic calculator to let each of you get an idea of what the government’s revenue and deficit would be like if every taxpayer paid the same amount of taxes that you do. All you need to do is enter into the first box the total amount that you paid in taxes for 2010 and then hit enter (make sure to include in that total income taxes and also Social Security and Medicare taxes). The calculator will then show how much total government revenue would decrease, what the total deficit would be, and the percentage the deficit would increase if everyone paid the same amount of taxes that you did in 2010. The government’s tax calculator says that a family of four with a total income of $80,000 would pay $9,983 in taxes this year, so $9,983 is set as the default starting number for the calculator.
Tax Comparison Calculator:
For comparison, here are the actual 2010 budget numbers:
Total Revenue: $2,381 billion
Total Expenditures: $3,552 billion
Total Deficit: $1,171 billion6
Some caveats: this calculator is pretty basic, so it’s only going to give you a ballpark figure. The calculator assumes that the government’s only source of revenue is individual taxpayers paying Social Security, Medicare and income taxes. In reality, the government has other sources of revenue including payroll taxes from employers and corporate income tax, so the calculator’s numbers are overestimates (in other words, if everyone really did pay the same taxes as you did, the deficit wouldn’t go up as much as the calculator shows). Since the vast majority of government revenue comes from individuals, however, these numbers work for each of us to get a ballpark idea of the progressive nature of our tax system, how our taxes compare to the average amounts paid, and the general trends of what would happen if everyone paid the sames taxes that you do.
3 The top one percent of wage earners pay a little less than 40 percent of all income taxes, and a little under 30 percent of all federal taxes. http://econlog.econlib.org/archives/2011/04/david_cay_johns.html
5 To compare your taxes to the averages I’m quoting, you would need to include Social Security, Meidcare and income taxes. I know that the government has other sources of revenue, including payroll taxes from employers and corporate income tax, so the $15,900 figure overestimates the actual average amounts paid by individual taxpayers, but since the vast majority of government revenue comes from individuals, these numbers work for each of us to get a ballpark idea of how our taxes compare to the average.