How Much Does $100 Billion in Federal Spending Cost You, the 'Average' American Family?

By David R. Henderson

George Shultz, secretary of state in the early 1980s, was also a first-rate economist. As a good economist, he put out a press release showing how little the average taxpaying household paid for aid to El Salvador. As I recall, it was about $34. (I can’t find a source.) Shultz seemed to think that $34 was a small number. But he quit talking about it pretty quickly. My guess is that he got a lot of feedback from average Americans expressing outrage at paying $34 a year for something that they valued less than that.
 
Steven E. Rhoads, in The Economist’s View of the World, points out what seems to be a constant in opinion polls.

When people are asked whether they want the government to do something, a majority says yes. But if they are asked whether they want the government to do that same thing if it means their taxes will increase, that majority shrinks to a minority.

There’s a lesson here: If you want to make a case against a government program or an increased government expenditure, tell people what that will cost an average family.
 
Consider a hypothetical proposal for the federal government to spend $100 billion in a year. It could be to help Ukraine, or it could be anything. That sounds large — and it is large. Unfortunately, Congress and the president often propose such large expenditures.
 
What would that $100 billion cost the average family? In the United States there are approximately 131 million households. So, the average family would pay about $763.
 
You might not be average. Based on a Tax Foundation study using 2019 data, I calculated high-income households, those in the top 20 percent of the income distribution, paid about 65 percent of all the tax revenue the feds collected. To be in the top quintile that year, you needed to have an income of $125,748 or more.
 
Assume for simplicity that these numbers, adjusted for inflation, are about the same today. Also, I’ll assume, even though I know it’s false, that this $100 billion will be paid entirely out of taxes rather than new debt. It’s not as bad an assumption as it looks. To the extent it’s paid out of new debt and to the extent future taxes pay off that debt, based on a progressive tax structure such as the one we have now, it’s a pretty good assumption.

So, the top quintile would pay 65 percent of $100 billion, which is $65 billion. That works out to $2,481 per top-quintile family.

Ask a family in the top quintile, “Is that $100 billion expenditure worth $2,481 to you?” Chances are the answer is no.

Today's TaxByte was written by David R. Henderson, a research fellow with the Hoover Institution at Stanford University.