Q&A of the Day – What’s the most & least efficient use of our taxes?
Each day I feature a listener question sent by one of these methods.
Today’s entry: I’d like you to do a follow up to your tax story. Specifically, I’d like to know what government programs are the most wasteful and which ones are the most efficient. Thanks.
Bottom Line: On Tuesday I had two related stories. One about who pays what in taxes. In that story I shared the updated distribution of the federal tax burden. Specifically, the top 1% accounted for 40% of all federal income taxes paid in the most recent tax year, while the bottom 50% of income earners paid only 2.9% of all federal income taxes – the lowest tax burden for below average income earners in American history. Separately I shared Florida ranks 7th in total tax rate, though Broward, Miami-Dade and Palm Beach Counties are all 20%+ above the state average in overall taxes. Now, to address your question. Aside from who is paying what in taxes, how efficiently or inefficiently is it being used? First, here’s where our tax money is spent.
- 55% of government spending is federal
- 45% is state and local
There is so much which happens that’s wasteful at the federal government level that I could spend a week breaking down examples and would only be scratching the surface. There are over 430 federal agencies and according to the GAO’s annual report there are 168 recommended actions which should be taken by Congress to improve government efficiency. It’s frankly depressing how wasteful the federal government is with our money. It should be noted that only 60% of federal government spending is “essential”, meaning one could make the case that up to 40% of our federal taxes aren’t used efficiently. When it comes to state and local taxes we’re fortunate to be in Florida.
Both WalletHub and the Tax Foundation identified Florida as having the 2nd best use of tax revenue collection. When you drill down a bit further here’s what we find.
- Florida’s tax revenue vs services delivered is 40% more efficient than the average state
There literally isn’t a category of public spending where Florida isn’t at least more efficient than average. Measuring efficiency can be tricky but I’ve decided to do it based on how much tax revenue goes to overhead costs. In Florida, an average of about 10% of all tax revenue is used to administer programs. That goes towards wages, benefits, buildings, travel, equipment, etc. It’s not necessarily fair to attempt to say one specific program is more efficient than others because the comparisons are often apple vs orange types of comparisons. Some government funded programs simply require much higher overhead costs to deliver, a la public schools, than others like Medicaid. The average overhead of federal programs totals around 25%. Thus...
- Federal efficiency is around 75%
- Florida’s efficiency is around 90%
I still think that when it comes to the federal government, we should have every member of Congress name as many federal agencies as they can. If even one member of Congress names an agency – it remains. If no one mentions an agency it’s eliminated. How many of the 430 agencies do you think we’d have left? And how much less waste do you think would take place?
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