Wasted Tax Money–Why the work week should be MUCH shorter (Part 3)

In Part I, we saw that the distribution of income and, especially, wealth in the U.S. is extremely inequitable, with the top 1% owning 42% of financial (nonhome) wealth, with the top .1% owning as much as the bottom 90% combined, and that the bottom 50% of the population owns essentially no wealth at all. As well, since total wealth in the U.S. is currently $81.5 trillion, average (not median–which is half above, half below) per capita wealth comes to over a quarter of a million dollars. Yet distribution of wealth is so lopsided that most people have almost no net worth.

We also saw that American workers–who have one of the highest average work weeks in the world, 47 hours–have seen their real wages decline nearly 10% since 1973, while productivity per hour worked increased by, on average, over 1.75% per year during the same period; compounded, that works out to an over 80% increase in productivity. So, American working people are producing far more than we did four decades ago, and are being paid less. To maintain the same average standard of living as in 1973, we should (assuming a 40-hour work week then) only be working 22 hours per week, had wage increases kept pace with productivity.

In Part II, we saw that working and “middle class” people (an increasingly quaint concept) pay higher taxes than the top 1%. There are two primary reasons for this: 1) Capital gains income is taxed at a far lower rate (15%)  than a good majority of earned (through work) income (with a rate of 28% starting at $37,000); and 2) Other taxes (sales, property, social security, gas, “sin”) hit average people, who spend almost all of their income, far harder than those in the top income brackets, who don’t. It works out that a single worker earning $10 an hour pays taxes amounting to roughly 40% of his or her income, while a nonworker in the top .1% only pays about 30%.

Eliminate that 10% difference in tax rates, and the average worker would have 10% more income–or could work 10% fewer hours to maintain his or her standard of living. Adding that to the 18 hours of work per week that should have been eliminated over the last four decades, and it means that the average work week should now only be 18 hours.

But the situation is even more extreme than that, for two reasons.

Wasted Taxes

The first is that a very large amount of tax money is either wasted or is spent on worse-than-useless things, things that increase human misery. Military spending is  at the forefront. U.S. military spending (not “defense spending”–the U.S. hasn’t fought a defensive war since World War II) came to approximately $600 billion in 2014. The next highest spender, China spent at most about one-third of that. (The estimate from the International Institute of Strategic Studies [IISS]; is $129 billion; the estimate of the Stockholm International Peace Research Institute [SIPRI] is $210 billion.) So, the U.S. military budget, taking SIPRI’s and IISS’s respectively, is either more than the next eight or ten countries combined. Given that the U.S. is under no military threat, that’s clearly excessive, an indication that the nation is ruled by fear and is under the thrall of, as Dwight Eisenhower put it, the “military-industrial complex.”

If the U.S. were to reduce its level of spending to that of China (taking the high estimate of China’s military spending), it would result in a savings of $400 billion per year, that is a savings of approximately $1,200 for every man, woman, and child in the country, money we could spend on our own needs were taxes to be reduced accordingly.

Then there’s debt financing, which ran to $430 billion in 2014, with about half of that due to military and military-related spending. Add to that another $60 billion or so in veterans spending and roughly $50 billion black budget spending — documents released by Ed Snowden placed it at $52.8 billion in 2012 — and excessive military spending, past (debt interest) and present, came to over $700 billion in 2014.

Other federal, state, and local spending is also wasteful and often harmful. The most obvious example is the “war on drugs” (WOD). Over the last four decades the WOD has cost Americans over $1 trillion and currently costs between $50 and $70 billion per year.

This in large part — along with sheer mean-spiritedness — results in the U.S. having by far the highest rate of incarceration in the world. There are approximately 2.2 million adults incarcerated in the U.S. (add in those under 18 and the figure is considerably higher), with the average cost of incarceration running to over $30,000 per year, for a total of approximately $65 billion annually. This works out to an incarceration rate of roughly 700 people out of every 100,000.  (This is somewhat misleading though, as this considers the number of adults incarcerated as a percentage of total population; considering only the adult population, the rate is just over 1,000 per 100,000.) In other words, the U.S. has by far the highest incarceration rate in the world. In comparison, Finland incarcerates 58 people per 100,000; Sweden 60 per 100,000; the UK 148 per 100,000; and even China only incarcerates 250 people per 100,000 population. If the U.S. reduced its incarceration rate to match that of the UK, it would save over $45 billion annually, money that could be spent on human needs rather than needlessly keeping people locked in cages.

Still, are mass incarceration and the “war on drugs” keeping us safe? Hardly. The U.S. has the highest murder rate of all of the industrialized countries. The U.S. also has the fourth highest rape rate.

Subsidies and Tax Breaks

Tax breaks (“tax expenditures” in bureaucratese), which go overwhelmingly to corporations and the wealthy, will be approximately $1.22 trillion in 2015. This exceeds the $1.11 trillion in federal “discretionary spending” (primarily military spending), and equates to nearly $4,000 per American–though average Americans receive a very small percentage of these breaks. Such tax breaks in part explain why, as we discussed in Part I,  low-income workers pay higher taxes (as a percent of income) than the very rich. And of corporate tax breaks 56% go to just four industries: agriculture, utilities, telecommunications, and fossil fuels.

Then there are direct subsidies. The Cato Institute estimates that the federal government provides $10 billion to $30 billion in direct payments to agribusinesses annually, and another $5 billion providing such things as crop insurance and “marketing support.” Taking the average of $20 billion in direct cash subsidies, it works out that the average citizen is subsidizing agribusiness to the tune of $65 annually in direct cash payments. Make it $75 if you add in subsidized crop insurance and “marketing support.” That’s relative chicken feed, but it’s grating to pay taxes to support profit-making businesses.

There are also massive direct subsidies to the energy industries. Cato reports a taxpayer-funded research program costing $646 million annually “into coal, oil, and natural gas technologies” and another $695 million spent annually on nuclear research. Then there are boondoggles such as the Yucca Mountain nuclear waste repository in Nevada, which was authorized in 1987, was supposed to go into operation in 1998, which thus far has cost taxpayers $10 billion — and which is still not storing a single ounce of nuclear waste.

There are other subsidies and other boondoggles, but why go on? This is a blog post, not a book.

Add all of the money wasted on unnecessary military spending, the war on drugs, unnecessary mass incarceration, and direct subsidies to industries — and there’s much other wasteful government spending — and on a per capita basis wasteful spending in these areas comes to over $1,500 annually. Add in tax subsidies to corporations and the wealthy, and the total rises to roughly $5,000 per capita (money that comes from excess taxation of low- and middle-income working people, and from government borrowing).

Then there are the great and inherent inefficiencies in capitalism, something we’ll consider in the concluding post of this series.