Friday, 18 October 2013

Are Americans happy with how their tax money is being spent?

Continuing with my recent theme of satisfaction with government in the United States, here I look at Americans' about beliefs about how effectively their tax money is being spent, using figures from Gallup. 

The first chart shows the change in local, state, federal and total government spending (as a percentage of GDP) in the US, between 1981 and 2011. Both local and state spending rose slowly but steadily throughout the period, increasing overall by about 2 and 3 percentage-points (of GDP), respectively. In contrast, federal government spending fell during the late 1980s and 1990s, and then rose again during the 2000s. It then increased rapidly at the onset of the financial crisis (due to a combination of lower GDP, the bank- and auto-bailouts, and the stimulus bill), so that--by 2011--it was about 2 percentage-points (of GDP) higher than it had been in 1981. Total government spending fluctuated up and down during the 1980s and early 1990s, declined during the late 1990s, and then rose during the 2000s. It was just under 8 percentage-points (of GDP) higher in 2011 than it had been in 1981.

In 1981, 2001 and 2011, Gallup asked Americans how many cents out of each tax dollar they thought the government wasted. The next three graphs plot the distributions of responses to this question for 1981 and 2011. The first graph shows the results with respect to federal taxes; the second with respect to state taxes; and the third with respect to local taxes. (The results for 2001 lie in-between those for 1981 and 2011, but are closer to those for 1981. There were two surveys carried out in 1981. I chose to display the result of the survey that minimised the difference between 1981 and 2011.)

In all three cases, the distribution of answers is shifted to the right for 2011, indicating that Americans believed that the government was wasting fewer cents out of each dollar in 1981. The descrepancy is largest with respect to federal taxes, and is smallest with respect to local taxes--a result that is shown more clearly in the final graph (below).

These figures show that, with higher government spending, Americans believe the average tax dollar is spent less efficiently. There are a number of possible interpretations of this result. First, if Americans' beliefs are unbiased on average, then as government spending increases, each tax dollar really is spent less efficiently. Second, as government spending increases, media efforts by those opposed to higher government spending (e.g., The Tea Party) systemtatically distort Americans' beliefs about government spending, even though spending does not actually become any less efficient. Third, the apparent trend may simply be an effect of the bailouts and stimulus bill. In particular, while an increase in government spending on, say, education or roads does not make spending any less efficient, the bailouts and stimulus bill were highly inefficient--or at least, were perceived to have been so by many Americans.

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