My friendly Nudge of the day.

The blogosphere is talking about the fact that we’ve just signed a $680 billion defense bill without any national conversation while we are having a very heated debate about $90 billion a year for health care. Ryan Avent dreams about a world where transit gets the military budget; Yglesias has follow-up.

Here’s my simple idea. Let’s say your salary is $60,000/year, and you take one exemption. According to this paycheck calculator, this is what your pay stub looks like every two weeks, leaving the States out of it:

bi_weekly_salary1

You see your hard earned money pulled off into Social Security, Medicare and Federal Withholding. If you are a person capable of harnessing great rage, your blood is probably boiling at the thought of the looters stealing from you.

Now let’s do one of those informational nudge things. Taking numbers from the Federal Budget from here, what if your paycheck looked like this instead, which is the same paycheck:

bi_weekly_salary2

Here you get a special line that identifies the amount of the Federal Withholding was actually going to the defense budget all along, and it tells you what it is. You get a number that lets you identify exactly how much of your time you are working to keep the defense budget as large as it is.

(Social Security % = Defense Spending % = 21% ; Since SS has a fund it deals with, I assumed that [ (Federal Withholding + Medicare) * 21% / (1 - 21%) ] = Defense Spending, since I just wanted to take Social Security out of the front and back end. Right way to approach it?)

There was a similar argument with ‘menu labeling’, where chain fast food restaurants have to give the amount of calories with the menu, in order to give consumers better information. There’s evidence that it hasn’t changed consumer behavior when its been tried. Karl Smith has an excellent writeup. I’m not sure if that means it is a failure; if the calorie intact went up, for instance, wouldn’t it be a success still? People may have wanted to eat more junk food calories, and were unfortunately eating fewer calories than they thought they were, and now that they know better they can go to town on an super-sizes. So it goes with benevolent nudging paternalism!

It’s equally possible that workers will see this and think they want to spend more on the military. The half of the day it takes to get to that $97, sometime around 2pm on your Monday of the two week cycle, may be too little, and people might want to work until late Tuesday to make sure Blackwater is keeping its returns high. That’s how it goes. How much of your two weeks work cycle would you like to spend working to keep a global military hegemony going? I’d probably want to clock it out around my first coffee break on Monday (which is fairly early), but that’s me. But either way, making this information much more clear to workers would make for a much more interesting discussion when it comes to how our federal money gets spent.

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32 Responses to My friendly Nudge of the day.

  1. Bruce F says:

    Thanks for addressing this. I think it would be a good idea. If you’re going to itemize, why not show where most of the money goes? It’ll get shot down because there’s no powerful constituency behind publishing the defense numbers.

    Most people wouldn’t ask for more spending on “Defense” if they were told the true story. 21% is intentionally misleading, part of the amnesia that accounts for the fact that the blogosphere is obsessed with a relatively small outlay for health care ‘reform’ and ignores the massive, stated, military budget.

    The real percentage attributable to the military is 54%

    http://www.warresisters.org/pages/piechart.htm.

    They show their methodology. It’s shocking.

  2. Tim K says:

    There was a municipal version of this many years ago in Chicago. In order to revamp the fairly run-down city library system, Daley II implemented a library tax, which was labeled as such. Result? Very little controversy about this tax hike, and a much-improved public library system.

    I like the idea of breaking it down. It’d be great to see “Foreign Aid: $1.50″ on there, too.

  3. Chris says:

    Hmm, the group linked by Bruce F seems to go a little overboard. NASA is half military? Did they arrive at that figure by going through line items, or just handwave it? 80% of the debt is military?

    Including military pensions is valid, though. And the VA and most of Homeland Security. And nuclear-weapons-related expenses budgeted through Dept. of Energy. (Although not nuclear-power-related, unless the nuclear power is a warship or submarine engine.)

    And since Social Security is already being counted separately, clearly you need a defense% that is calculated from SS-excluded numbers.

  4. Seth says:

    I like the idea of itemizing. The numbers would be gamed by every new administration of course, as spending got reclassified.

  5. tudza says:

    So because you pay Social Security and Medicare you are supposed to feel great rage? Couldn’t you as easily feel a bit better about yourself knowing some old people are a bit more healthy and a little less broke than they might be?

    Not sure I could find a bright side for most defense spending.

  6. financeguy says:

    Great idea! Do it for, say, the 3 largest federal categories of expenditures. I doubt the average American realizes how much we’re spending to fight 2 costly wars. To me it’s absurd that a fraction of that money could be used for a good health care system, but no one wants to discuss this. The big military budget is offensive and absurd.

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  8. Jon says:

    You might also do an annual statement (like the one we get about Social Security) that breaks down, out of the federal taxes you paid last year, what it was spent on, using maybe 12 categories.

  9. Dan says:

    Isn’t it worse than this, though? You equate the defense spending and social security spending as equal, which is true, but then use that to parse out how much money of your withholding is towards defense… Problem: social security is more than funded by your withholding, while defense (and the rest of the budget, plus medicare) isn’t. So, you need to inflate your federal tax withholding by the amount that is funded by deficit AND the current overage taken for SS (which I realize isn’t as much as it used to be) to use the initial spending equivalance.

  10. SBG says:

    Of course, once you hit the maximum (if you do) on SS and medicare, those numbers no longer go up, but defense does.

  11. RobertSeattle says:

    I always thought it woudl be cool if when you filled out your 1040 the taxpayer got to specifiy where the money goes – there’d be a series of boxes by Dept and you’d allocate your federal taxes they way you wanted them spent.

  12. JonTom in Cambridge says:

    I think that this could easily end being counter productive. It would naturally lead to the situation in states, like California, with low barrier referendum requirements, where voters pass all sorts of ill-thought-out contradictory initiatives putting all sorts of constraints on the budge. The voters don’t judge these initiatives in the context of the whole needs of the state or what the financial consequences are. They are prey to simple slogans and manipulative ad campaigns.

    This kind of labeling gives a one-dimensional view of a complex budget, a view that would be easy to distort. I think that you’re very likely right, “that workers will see this and think they want to spend more on the military.” That sounds much better than spending it on infrastructure, etc, and how can you ever have too much security? That, despite us already spending on defense close to what the rest of the world spends /combined/.

    The point of representative government is that legislators are given the responsibility of considering measures in depth and weighing one claim against another. You might think they currently do a bad job, but believe it could be done even worse. Much, much worse. Just look at the governance mess in California.

  13. Derek says:

    Medicare & Social Security are paid out of dedicated funds (hence the FICA deductions). The Federal withholding on your paycheck represents the non-Social Security & non-Medicare portion of the budget. Military spending is 21% of the whole budget – but that includes Medicare & Social Security which are paid from their separate funds. Back out Medicare (22%) and Social Security (21%) to determine the size of your Federal withholding pot of money. Taking out the 44% from Medicare and Social Security leaves you with military spending (21%) divided by rest of budget (56%), giving you military spending equal to 37.5% of your Federal withholding line i.e. $133.12

  14. theod says:

    Great idea. Similarly, I have promoted the concept of promoting the true cost of a gallon of gas by factoring in the Defense Budget into that particular commodity. People would make better choices with better and more complete information.

  15. Tim says:

    I think you’re missing a couple key components.

    First off, the 21% figure is the percentage of total expenditures, so you’d need to include SS and medicare in your calculation. Both of those categories are employer matched though, so you’d need to bump them up substantially.

    To be more accurate, I’d add the employer contribution dollars to the Bi-Weekly Gross Pay line, giving you something more like:

    Bi-Weekly Gross $ 2484.23

    Social Security $ 286.16
    Federal Income Tax $ 206.29
    Defense $ 148.69
    Medicare $ 66.92
    _________
    Net Pay $ 1776.17

    I’d rather see it go even further and dump the excess collections from the SS bucket into the Federal Income Tax bucket where it belongs since the government spends that money anyway!

  16. maxwellthedog says:

    Interesting idea, but I don’t think it goes nearly far enough. In an ideal world, we could set the tax rates at a specific level so everyone pays something (regressive, progressive, flat– I don’t care, so long as EVERYONE pays). Then every time the government raises taxes, everyone’s tax rate goes up the same proportional amount.

    By spreading new spending initiatives across the population, as soon as they are enacted, it might hopefully slow down the rate of increase of government outlays, or at least inject more debate about the topic– for everyone.

    While we are at it, let’s also add a line for “outstanding debt” which can be pro-rated by each taxpayer’s previous year’s AGI. We can also add a line for “unfunded liabilities” based on the latest CBO projections for the future costs of Medicare and Social Security.

    I bet that would REALLY give people pause.

  17. banality says:

    It would have even more impact if interest paid on national debt were included, so that workers could easily visualize how deficit spending, and raising our debt, actually raises our taxes later. My rough calculation is that the debt part of my lost wages would be about 75 dollars a week or so.

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  19. Jon H says:

    How about a category for federal debt service?

  20. Myself says:

    For people who get health insurance from their employer, how about including the cost of their insurance in their paystub. Should prevent people from thinking that this benefit is “free”.

  21. Joshua says:

    I’d love to see “interest on the debt” in there as well as some notion of money you should be paying but are not because of the deficit.

  22. Gregory says:

    Wow. All this intelligent discussion about numbers and absolutely none about whether providing health insurance (or public transit for that matter) is a legitimate function of the federal government.

    On the other hand, I’m pretty sure and army and navy are specifically mentioned in the Constitution.

  23. Pingback: What if our checks showed us where our money goes? | Increase Our Taxes

  24. Willie says:

    I think you mean War Spending. Dont believe the newspeak….we have a secretery of WAR not defense.

  25. mccleary says:

    Would also like to see debt service in a line item.

    Point of clarity: You say “that we’ve just signed a $680 billion defense bill without any national conversation.” I don’t remember signing anything. I think you mean “President Obama just signed…”

  26. Daniel says:

    I think its a great idea actually. The reality is …our military budget does not represent what we need to spend in order to sufficiently defend our country. Unfortunately – due to the enormous costs…it actually has the opposite effect. Our current fiscal trajectory is not sustainable and a very large part of government spending increases actually come from the military. And I’m not talking about taking away money or benefits from our troops; I’m talking about no bid contracts to Halliburton (now KBR), fraud and waste with large defense contractors like McDonnell Douglass and Boeing and employing mercenaries from Blackwater.

    Great solution; its unliikely to happen EVER…however its a great idea.

  27. JOhn says:

    As long as you also put the cost per person of all the other entitlement programs we pay for.

  28. Zee says:

    Defence always goes up. For whatever purpose and reasons I won’t fully understand.

  29. roger says:

    Interestingly, when Saenz and Piketty explored the question of the progressivity of American taxes, they took it for granted that S.S. and Medicare are a wash – because, on average, you will get that money back in retirment. Military spending you won’t get back. It is pure expenditure.

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  31. David Q says:

    I wouldn’t mind: The $1776 total at the bottom of the check makes me swoon with patriotic fervor… Hey, it worked for the lend-lease act!

    http://www.archives.gov/exhibits/treasures_of_congress/Images/page_20/65c.html

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