Where do your taxes go? Receipt could show you

WASHINGTON — The average American family pays more than $7,000 in federal income taxes a year. The average American also mistakenly believes a big chunk of it is spent on foreign aid.

As President Obama prepares Wednesday to unveil his most detailed plan yet for weaning the country off borrowed money — following a House Republican budget-cutting plan released last week — some people say an urgent national debate about the federal deficit and debt is stymied by many Americans' fiscal illiteracy.

Voters, they fear, have but a dim grasp of the nation's finances, including how the government spends their taxes.

Enter the taxpayer receipt.

Rep. Jim McDermott, D-Wash., is among a band of people from inside and outside Congress who believe Americans should see an itemized receipt for their federal purchases. As early as this week, the Seattle Democrat plans to resurrect his bill to require the Internal Revenue Service (IRS) to issue a detailed annual spending breakdown for each taxpayer.

Sens. Bill Nelson, D-Fla., and Scott Brown, R-Mass., introduced a similar measure last month. Third Way, a center-left think tank in Washington, D.C., is promoting the idea actively.

Beyond educating Americans about income and outlays, taxpayer receipts are meant to help pop the fantasy math where no tax increases and minimal spending cuts equal a balanced budget.

"Americans are basically greedy. They think they can have all the Social Security and Medicare they want and still have low taxes," said Ron Haskins, an expert on budget and welfare issues at the Brookings Institution, a center-left policy research center in Washington, D.C.

Medicare and Medicaid, for instance, pose the biggest long-term strain on the federal budget. Yet, 48 percent of Americans favor boosting spending on Medicare for seniors, according to a CNN/Opinion Research Poll released April 1.

The same poll found that half of the respondents believe international humanitarian aid consumes at least 10 percent of the federal budget. The actual figure is about half of 1 percent. The median guess for share of the entire federal budget allocated for the Corporation for Public Broadcasting was a whopping 5 percent — more than what the government spends on transportation, law enforcement and homeland security combined.

McDermott blames the widespread ignorance on lack of handy information.

"Americans would like to know [more], but they have no way to go about it," he said.

McDermott's taxpayer receipt would expand on the simple pie chart now included in the 1040 tax form showing how much money the government takes in and where it all goes.

For 2009, the chart shows revenue from payroll, individual, corporate and other taxes covered 60 percent of federal spending; the rest is red ink.

The IRS breaks down spending in broad categories. Social Security and Medicare take up one-third of expenditures. Defense and veterans programs account for 22 percent, with roughly the same amount going to Medicaid and food stamps.

McDermott's proposal would further break down the categories to two dozen, including salaries and benefits for members of Congress. Military operations in Iraq and Afghanistan also would be listed as separate spending items.

The receipts would calculate how much of each taxpayer's money was spent on each category.

Third Way, the D.C. think tank, estimates it would cost $15 million a year to provide the receipts to taxpayers who mail in their returns. Seventy percent of households file electronically, and costs to generate receipts for them would be minimal.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., said he believes the receipts could be a helpful remedial aid.

But Baker, who writes a weekly critique of economic coverage called "Beat the Press," believes the nation's fiscal challenges may be too complex and people's understanding too shallow to tackle with an annual summary. Even among members of Congress, he estimates, only about 20 percent have true command of financial and economic concepts while another 20 percent have a "pretty good" understanding.

"And then you have 60 percent that are just lost," Baker said.

McDermott says he believes a better-informed electorate is a more skeptical electorate. He contends, for instance, people would be more resistant to those who want to pare the deficit "on the backs of the poor, the elderly and the disabled" while largely sparing defense programs and the wealthy.

Once people have the full picture, he said, they will realize that putting the nation's finances in order will mean "there is going to be a whole lot of pain for everybody."

Kyung Song: 202-662-7455 or ksong@seattletimes.com