Taxes

What Should a Taxpayer Receipt Tell Taxpayers About How Their Money Is Being Spent?

|


A few weeks ago, I noted a proposal by the group Third Way to give taxpayers a receipt showing how their taxes were being spent. I argued—and still believe—that the idea has some potential to focus taxpayer attention on the high cost of entitlements and defense spending. But as I noted at the time, compiling a receipt in a way that would be clear and meaningful to the average taxpayer would require some simplification. And the simplification process would almost certainly prove contentious.

The folks at OMB Watch have put together a helpful primer on both previous state-level efforts to provide such information to taxpayers and the thorny interpretive questions that would have to be resolved in order to do so. As is almost always the case, effective implementation is the most difficult part of any program:

Another challenge would be trying to summarize the complex federal budget in an accessible yet comprehensive way. Although the Third Way brief asserts that preparing a taxpayer receipt would be "really very easy," many subjective decisions would be involved. Deciding how to describe and categorize federal spending could be challenging. For example, the Taxpayer Right-to-Know Act mandates nine broad categories and 19 sub-categories, while independent calculators by What We Pay For and Kareem Shaya use entirely different categories.

Should the receipt list agencies (e.g. Department of Defense) or particular activities (e.g. war in Afghanistan)? Listing the budget per agency would be simple but not necessarily informative. For instance, besides knowing the overall budget for the Department of Education, many taxpayers might wish to know how much spending goes to K-12 education, early childhood education, or postsecondary education. Government activities as seen by the taxpayer do not necessarily correlate to budget lines, and many activities cross agencies (such as educational programs conducted by the National Science Foundation). Because the way that spending activities are described can influence taxpayers' opinions, if a receipt were widely viewed, the descriptions could be manipulated for political purposes.

Another difficulty is how to provide appropriate context to spending information while keeping that information accessible. For instance, rather than merely learning the dollar figure for last year's spending, taxpayers might wish to know how the number compares to recent years or historical trends. In addition, spending does not exist in a vacuum but is meant to address needs or produce outcomes; however, information on merit or performance of the activities is outside the scope of Third Way's proposal.

Right. It's not just how much money is being spent that matters, but how effectively it's being used. Still, given how little most taxpayers know about how their money is being spent (surveys show that many taxpayers believe we spend more on foreign aid than entitlements), simply providing them better information about how their dollars are being distributed across various spending categories would be a good start.