LIKE a lot of Americans, Martha and Joseph Bagby of West Palm Beach, Fla., were not certain what happens to their tax dollars - they felt as if no one ever told them how their money was spent. It was a complaint frequently heard by their daughter, Meredith, then a junior at Harvard University.
But Meredith decided to do something about it. She started to collect a twine-ball of information in 1994. Then, during summer break, she began to put it together - calling it the ''Annual Report of the United States of America.''
She printed 200 copies and mailed them to newspapers across the country. One newspaper article eventually caught the eye of H. Ross Perot, who started waving the report at a Senate Banking Committee Hearing last year. Soon afterward, HarperCollins published it.
The success of Ms. Bagby's layman's guide to federal spending is a testament to youthful initiative and an indication of the confusion surrounding one of the hottest political issues today: the nation's multi-trillion dollar budget.
Late last month, the sequel arrived - the second annual report. The 83-page effort goes beyond Bagby's parents' initial question and looks at the US from a social, political, and international perspective.
It is also a modern primer, explaining the basics of such complicated federal programs as Medicare and Medicaid. And, since this is an election year, Bagby has included a chapter on politics with thumbnail sketches of the candidates and their platforms.
''It's a governmental, economic, and political almanac for the year ... issued by a humble citizen,'' says Bagby, in her youngish voice. She's now traded in her blue jeans for investment banking pin stripes as a junior analyst at Morgan Stanley & Co.
Bagby views the United States the same way Wall Street looks at a company. Her report is broken down into five segments and is filled with simplified, easy-to-read, charts and graphs. ''The more we understand as involved stockholders, the more exciting and productive America can be,'' she says in the book's opening letter to readers.
Bagby estimates that HarperCollins sold 20,000 to 30,000 copies of the first book (the publisher will not reveal the exact amount). Adrian Zackheim, publishing director of HarperBusiness, says he was attracted by ''the wonderful story - the fact she had gone out and done it on her own.'' He believes she is the youngest author published by HarperBusiness.
But the book almost didn't get published. Bagby sent her version to newspaper book reviewers who generally ignored it. After Mr. Perot was pictured with the report, her roommate's mother called The Boston Globe and suggested the paper write a story about Bagby. Then, an agent saw the Globe piece and persuaded HarperCollins to take the book.
An economics major, Bagby says she was influenced by several Harvard professors, including economists Martin Feldstein, President Reagan's chairman of the Council of Economic Advisers, and Benjamin Friedman, author of a book about the dangers of the deficit. ''She got it right, understood the material, ran with it, and more power to her,'' says Mr. Friedman in Cambridge, Mass.
The influence of these conservative economists shows up in the book's approach. For example, there is a page on America's net worth, or the liabilities less the assets. Bagby notes that the US now has a negative net worth of about $3.8 trillion (the book has a typo, indicating the number at $3.8 billion).
But Stanley Collender, a budget expert at Price Waterhouse in Washington, D.C., says the concept of figuring America's net worth is dubious. Asks Mr. Collender, ''How do you value something like the Grand Canyon?''
Bagby is not afraid to comment about policies. For example, she does not agree with presidential candidate Steve Forbes that the tax system needs to be reformed to promote economic growth. ''There is not a correlation between the tax rate and growth rate of the country,'' she says, but adds there is a need to restructure the system to encourage investment.
She says Forbes's flat tax does not make sense. ''The danger is that we may not raise as much revenue; then these deficits start all over again,'' she explains.
Although citizens are bombarded by economic statistics, Bagby believes the three most important measures for the US are the growth rate of the gross domestic product, the sum of all goods and services produced; the nation's trade balance, which indicates whether the nation is buying more goods than it is creating; and the percentage of children born out of wedlock. The last statistic, she says, gives the country an indication of how many people will fall below the poverty level and will be likely to use illegal drugs.
Always on the go, she has already started planning next year's annual report. ''I want to talk about the end result of the budget debate, explain the history of the debt ceiling, and do a review of the president and Congress in the budget debate,'' she says.
Bagby's mother is not surprised that her daughter has produced the report. She recalls that as a child, Meredith loved statistics. ''When she was a little girl, she knew about equations and minus numbers,'' says her mother. ''Now she knows about deficits.''
The learning process has left its imprint on the Bagbys' den, stacked with boxes and books. ''When people come over, we just close the door and ask them not to go in the room,'' her mother relates.
Despite the clutter, the Bagbys are proud of their daughter's accomplishment. And, Mrs. Bagby says, they finally know where their tax dollars are going. ''It's opened my eyes a lot.''