As US tax rates drop, government's reach grows

Study: 1 in 2 Americans now receives income from government programs.

from the April 16, 2007 edition

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This balance will be tested in the years ahead.

The Congressional Budget Office, in a long-range forecast prepared in 2005, outlined a baseline scenario in which entitlement programs push federal spending to 25.3 percent of GDP by mid-century, up from about 18.4 percent today. That number could go higher still if medical inflation doesn't edge downward.

Similarly, Shilling predicts that the number of "government beneficiaries," as he defines them, will grow to 60 percent of the US population by 2040 Against this backdrop, many Americans are understandably uneasy about the fiscal path of their politicians.

Some want to scale back the federal budget. Others see new priorities for spending, such as scientific research and global warming.

"It pays to invest in early education programs," says Fran Smith, who works for an education-oriented community organization in Boston.

To afford it, she says, government needs to use money more wisely, more for public goods and less for what she says are the "profit motives" that now pervade Washington.

"For … working class people, the last thing we want is more taxes," Ms. Smith says as she hurries to an afternoon meeting.

One challenge for the nation is to define what is wise spending and what is not. Some government largess is showered more on the well-to-do than the needy. By giving a tax break for the interest homeowners pay on their mortgage, for example, the government is effectively spending money to encourage homeownership. But the deduction is far more valuable to people in higher tax brackets than low ones.

"Arguably the mortgage interest deduction actually reduces the number of homeowners, because it pushes up the price of housing," Len Burman of the Urban Institute said last week in a seminar titled "Stupid Tax Tricks."

But, stupid or not, don't expect that popular deduction to bite the dust anytime soon.

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