One thing I’ve learned in all the years I’ve done marketing is that you base your decisions on your customers’ actions rather than their words.  I can’t tell you how many survey’s I’ve done asking customers if they are interested in a product at a certain price, had the vast majority say "Heck yeah!" and then when I launched it had about 10% actually buy it.  They weren’t lying, it’s just that when it came time to actually pony up some money they decided they didn’t really need that product after all.

The lesson I took out of this is that if you really want to know what people value just look at how and where they spend their money. I think the same can be said of society in general, and that’s what makes looking at how our government spends our money so interesting.  After doing a little research I was able to find the following numbers (source: http://nationalpriorities.org), and I’m using all the zeroes to make sure we all understand that this is a buttload of money:

Overall Federal Spending FY06: $2,470,000,000,000

Mandatory (i.e. entitlement) Spending: $1,500,000,000,000
Here’s how the mandatory spending breaks down:

• Social Security: $510,000,000,000
• Income Security: $285,000,000,000
• Medicare: $285,000,000,000
• Health: $195,000,000,000
• Net interest payments on national debt: $180,000,000,000
• Veteran Benefits & Services: $45,000,000,000

Discretionary (what Congress allocates each year) Spending: $960,000,000,000
Here’s how the discretionary spending breaks down:

• National Defense: $518,000,000,000
• Education, Training, Employment & Social Services: $86,400,000,000
• Health: $57,600,000,000
• Other*: $57,600,000,000
• Income Security: $48,000,000,000
• International Affairs: $38,400,000,000
• Administration of Justice: $38,400,000,000
• Veterans Benefits & Services: $28,800,000,000
• Transportation: $28,800,000,000
• National Resources & Environment: $28,800,000,000
• General Science Space & Technology: $28,800,000,000

*Other is defined as energy, agriculture, commerce and housing credit, community and regional development, general government and the administration of Medicare and Social Security.

I’m still kind of sifting through all this and trying to figure out what it means, but I can tell you that I’m pretty surprised that our spending on science and technology is only  1.17% of federal spending, or that one discretionary category, national defense, is the largest segment at 20.99%.  I had assumed that Social Security would be the largest but it is a little less at 20.65%.

I understand that some of these numbers are generalizations; for instance there is definitely quite a bit of money spent on science and technology (R&D) that is probably under the national defense umbrella, and it does lead to some technological breakthroughs that are then licensed to businesses, but it is a relatively paltry sum.  Still, these broad numbers give us a sense of where our tax dollars are going, and it’s important to keep them in mind as we debate the future priorities of our country.

We also need to keep in mind where all this money comes from.  Here’s a breakdown:

Total FY06 Revenue: $2,000,000,000,000
Here’s how it breaks down:

• Individual Income Taxes: $894,000,000,000
• Social Insurance: $774,000,000,000
• Corporate Income Taxes: $227,000,000,000
• Other: $159,000,000,000

So 44% of the country’s revenue comes from the individual income tax, 39% from social insurance taxes and a little over 11% from corporate income taxes.  Keep in mind that the social insurance taxes are mostly funded by payroll deductions on individuals (6.2% for Social Security and 1.45% for Medicare) with an equal amount paid by their employers.  So if you take half of the social insurance and apply it to individual taxpayers they are contributing just over 64% of the revenue and if you apply the other half to corporate taxpayers they are contributing just over 30%. (These are definitely not specific numbers since social insurance also includes things like unemployment and general retirement, but I think it’s close enough).

What’s interesting to me is that the percentage of revenue from individual income taxes has remained steady over the last fifty years at 44% while the percentage from corporate income taxes has decreased from 27% to 11%.  I have a sneaking suspicion that the reduction in corporate income taxes is probably directly correlated with the growth of business PACs and their influence on K Street. 

It’s also interesting to note that the Social Security and Medicare taxes are only applied to the first $84,900 of income so higher salary earners actually pay a lower tax rate than those under the $89,400 line.  And 75% of taxpayers pay more in Social Security and Medicare taxes than they do in income taxes, which highlights how many are near or below that $84,900 line.

After looking at these numbers, and keeping in mind that we’re coming up on a rather important mid-term election, I think we, as a society, need to decide what our priorities are.  We need to figure out if we want to continue electing people who are spending our money as highlighted above, or if we want to change our spending habits.  Do we pick on the silly pork barrel projects like the "bridge to nowhere" or do we concentrate on the big fish like defense, medicare and social security? Of course we should do both, but I suspect that if we took care of any one of the big three we would do as much as we would if we tackled every single pork barrel project.

We also need to decide how we’re going to pay the bills.  Do we continue to with our current tax policies or do we restructure them to relieve some of the stress on individual taxpayers?  Do we phase out income tax in favor of a federal sales tax?  Or do we keep the income tax but simplify it and go to a "flat" tax? Many people call these regressive taxes because the disproportionally impact the poor, but is this true?  And if it is do we as a people believe that the wealthy should contribute more since our society has allowed them to prosper? Do we continue to levy Social Security and Medicare taxes at the current level or do we raise them or lower them?

Questions like that last can’t be answered in a vacuum, but rather are contingent on answering questions related to spending, i.e. should we even continue with Social Security?  Much like losing weight is about diet AND exercise, setting the course for our country is about taxing AND spending and I think it’s high time we got serious about both.