Discretionary Spending: Support Thyself
Many of you may know that my business is engaged in private management of public recreation. We get a lot of pushback from certain sectors who believe access to government lands or services should be free -- ie already paid for by their income taxes.
I often argue that this notion of discretionary services (like parks and campgrounds) being run with high cost government labor and funded by general revenue taxes is a dead one - in fact it has been dead for at least 10 years. Just look around at public parks organizations. Odds are that your state is facing parks closures and is very likely not fully funding park maintenance. I wrote about this failed model here.
In the future, anything discretionary government program that can charge use fees or be privatized or both will do so. Or else it will be provided at terrible quality with long queues and frequent closures. Don't believe me? Lets look at the US government budget data from last year. This chart has been making the rounds -- I have not checked the data source but I presume it is correct (as usual click for larger version)
I have some interest in the science of chartmanship. McKinsey & Company did a great job teaching me how to make a presentation, a skill I have honed somewhat in way too many planning and strategy jobs that seemed to revolve around Powerpoint (one of the criteria for my current job is that it did not involve Powerpoint).
This chart is a case where the author used the wrong chart type. The pie chart is not appropriate to show a changing total (as the author does with the size of the pie). The eye has trouble assessing volumes. I have taken the same data and put it in a slightly different form. I did not take time to make it pretty, but I think it works better in this format:
Now do you see my point about discretionary spending? Last year government taxes just about covered entitlements and interest on the debt. Had we not borrowed, there was no money left over for any discretionary spending, including all of the Defense budget! Now, even without action, the picture will improve in 2011 as taxes go up with a rising economy and some of the unemployment spending goes down. But this might just get us to still having a defense department. Either large swaths of discretionary spending is going to have to be zeroed out, or some sort of entitlement restructuring is necessary.
Of course, tax increases will likely be part of the mix as well, but look at the individual income tax bar. Even doubling it would not close the budget gap!
me:
There is a bit of a danger in a chart like this - the answer to the budgetary woes the US is in is not to simply cut entitlement programs, but to cut all of the above (because there's no way we can get to 0 on any of these items - there are strong lobbies leeching off each and every one of them).
It's the old conundrum: I'd like my tax dollars to be spent on security and possibly a little charity - make reasonably sure no foreign army invades my home, make sure nobody murders my people or steals from me, make sure there are good enough roads for ambulance to fetch people in distress, make sure there are fire engines that can put out blazes, make sure nobody freezes in the cold or starves. Instead, I pay for invasions in the third world, a force dedicated to speeding limit enforcement, I get tolled for necessary roadwork, pay more than people in any other nation worldwide for the same quality of medical care and pay through my nose so that people who lived happily through the boom years can get subsidized majorly in their old age, with a guarantee that I'll never experience the same luxury. Because there's a single supplier, I can't shop around for a better deal, and withholding payment until my needs are fulfilled is also not an option. How could I possibly get what I want?
March 1, 2011, 10:35 amMike:
"Odds are that your state is facing parks closures and is very likely not fully funding park maintenance."
Not Arkansas. Our parks are funded by a fraction of a cent sales taxes established by a voter supported constitutional amendment several years ago. Our parks system is thriving and many new improvements have been and are being funded.
Our constitution also mandates a balanced budget so, from what I can see, we are not in the financial mess that other states are in
March 1, 2011, 10:45 ammorganovich:
california, on the other hand, threatens to close parks and libraries at the drop of a hat.
they are always first on the block when cuts come around.
i suspect this is to make it painful for taxpayers and to try to drive them to accede to higher taxes.
March 1, 2011, 11:05 amNL:
The bar chart is far superior to the pie chart in illustrating the deficit. One potential problem is that a casual observer might deduce that the US needs to dramatically increase the corporate income tax and other taxes, since it appears that the income tax and social security (FICA) are already so large. It makes corporate and 'other' look puny. Of course, the US corporate rate is already the highest in the OECD.
March 1, 2011, 11:12 amFoxfier:
If we could only cut down on the waste inherent in government itself-- there's got to be SOME way! Changing the way contracts are awarded, cutting down paperwork (both that required of others, and internal paperwork) cutting down on the classic assistant secretary to the secretary's assistant for budget control type stuff.
It would require taking a hatchet to a lot of the regulations, so we're probably SOL.
March 1, 2011, 11:14 ammorganovich:
NL-
corp taxes look "puny" because corporate income is puny relative to personal income.
most corporations spend a great deal more on salaries then they earn in profit margin.
March 1, 2011, 11:20 amtomw:
Just one question on the charts at first glance: Where are the Medicare payments noted? They are broken out on the W2 forms, and are in addition to FICA and Federal Income Tax. The expenditures are noted as mandated 'entitlements', but not the income that should be directed to cover the entitlement.
March 1, 2011, 11:20 amThe graph even displays Social Security revenue as greater than expenditure, but nothing of Medicare.
tom
Orion:
Corporate taxes are taxes on people and investment. Additionally, huge amounts of corporate tax is paid as personal income tax because of "S" corps where all profits are passed through to the owner(s) and paid at the personal rate.
March 1, 2011, 12:37 pmOrion:
BTW, this is a great chart. It also tells me one thing: VAT is a matter of time.
March 1, 2011, 12:39 pmJody:
Tom: Social Insurance Income = SS + Med
March 1, 2011, 1:49 pmGoneWithTheWind:
Something is very wrong with the chart. Non-Medicaid "welfare" exceeds $800 billion but does not show up on the chart. Why is that? My guess is that the federal government has hidden the enormous cost of welfare in 7 different federal departments because they don't the taxpayer to know how much it costs. When this chart was created it too hides the cost of welfare. Therefore you have to wonder if any of this is accurate?
March 1, 2011, 8:34 pmIgotBupkis, President, United Anarchist Society:
> the picture will improve in 2011 as taxes go up with a rising economy
If anyone is counting on this they're likely a bit foolish.
It's a fair bet that gas price shock is going to apply fresh brakes to the economy. When gas prices rise that far, that fast, it's a good bet that there's a contraction in business as people get cautious and hesitant about unnecessary travel and spending.
March 1, 2011, 9:52 pm