One Family’s Perspective On the US Federal Budget

When people set out to discuss the federal budget, they often get glassy-eyed after the first few $100 billion. We have all seen graphic examples of the sums involved, such as the stacks of dollar bills rising to the moon and beyond. Designed to help us understand the magnitude of federal finance, these “visual aids” are often as overwhelming as the raw numbers and don’t really help at all.

I find it useful to view the federal budget in terms of cost per person or cost per household. Figure 5.4 does just that and allows me to determine what my family or I pay for each category. For example, in 1992 my family was paying $520 for deposit insurance. This was money spent to bail out failed banking and savings and loan institutions. Note that the numbers in Figure 5.4 are for federal budgets only and do not include state and local budgets. In 2002, public education spent an additional $370 billion ($3,500 per family) at the state and local level. In 2006, public education spent an additional $431 billion, ($3,767 per family) at the state and local level.

I have also gone one step further. Where possible, I calculated the dollars involved per intended recipient (very approximate). Thus retirees now average over $20,000 per household (1988) from Social Security, Medicare, and federal pensions.

We originally visited this subject in our spring 1988 newsletter where we calculated federal spending on a per-capita and per-household basis. We have updated that data in Figure 5.4. The 1992 budget for federal spending was 9% greater than in 1988 (after adjusting for inflation). In turn, the 2002 budget is 16% greater than the 1992 budget, again adjusted for inflation -- and the 2006 budget is 14.67% greater than the 2002 budget, after adjusting for inflation. While many people focus on the federal deficit, we’ve argued for years that the problem was in the level of government spending. Since every dollar spent by the government is a dollar removed from the free market, a primary source of weakness in the private sector is the increased level of government spending.

Figure 5.4 Federal Budget Programs, 1988-2002

Coming to Grips As you can see from Figure 5.4, the major growth segment in the federal budget is entitlements, particularly Social Security and Medicare. We have reached a point where the elderly constitute 13% of our population, but receive over 60% of all federal social spending. Our politicians are well aware of this. Tip O’Neill was well aware of it a decade ago, and Barbara Jordan made a point of it at the Democratic Convention. Few people realize that people who retired six years prior to 1992 had already received every dime they had ever paid into Social Security, and could expect to receive an additional three multiples of their contribution during their remaining lifetimes. (Yes, all of the numbers are adjusted for inflation and company contributions. Details are available upon request.) In 1992, $14 billion in Social Security benefits went to people with cash incomes over $100,000 per year. In 2006, the numbers are higher. I’ve yet to hear an argument why anyone with assets over $1 million or income over $50,000 should receive more from Social Security than they paid into it. Although I am encouraged by the changes that I see proposed, considered, and discussed in this fascinating political year, I will remain skeptical of the American public’s desire to reach a solution to our economic problems until I see them come to grips with the simple arithmetic of the federal budget and Social Security.

2007 Update In 2007, very little changed except that many other departments, from Education to Defense to Agriculture, are now vying with entitlements as the fastest growing segments of federal spending.

Editor’s Note Every dollar the government spends, we, the taxpayers, must earn. There is no free lunch.