Did you know that for 140 years, each Congress began in December? For our 18th century Founding Fathers, many of whom were farmers, December was the logical time to meet while the soil was resting and work slowed back home. The patterns around us can have an impact in many different unnoticed ways.

The Congressional Budget Office (CBO) has recently released a study, The Distribution of Federal Spending and Taxes in 2006, which should get plenty of notice among policymakers who are thinking about long term government spending patterns. In six simple graphs, CBO summarizes how three types of federal spending (cash and near-cash transfers, health care, and other goods and services) and taxes are distributed across three types of households—elderly, nonelderly with children, and nonelderly without children. The elderly account for 15% of the total U.S. population; nonelderly households with children account for 53% of the population; and nonelderly households without children are 32% of the population. The results might be surprising to some.

In examining the issues of long term services and supports (LTSS), and how to finance them in particular, the CBO report provides an interesting picture viewed through an intergenerational lens, though CBO also reminds us that the differences between households over a lifetime will be smaller than a particular point in time as people move between categories. At a minimum, the CBO data clearly shows that increasing transfers to elderly households will widen a gap between generations that already exists.

On the spending side, CBO reports that:

  • In 2006, the federal government spent $2.7 trillion on a wide range of goods and services.
  • $785 billion of spending went to cash (for example, Social Security benefits) and near-cash (food, housing, education) transfers.
  • Elderly households (15% of total population) received $415 billion (53%) of the cash and noncash transfers. The remainder was split nearly equally between households with children and those without children.
  • Of the $480 billion spent on health care, $305 billion (nearly two-thirds) went to elderly households. $95 billion went to those households with children and $80 billion to those without children.

Click here to view graphs.

  • Another $95 billion was spent on transfers for individuals living in institutional care. CBO did not allocate this spending among the three types of households. Such funds are spent on individuals who are elderly or have a disability.
  • Of the nearly $1.3 trillion in combined spending on cash, near-cash and health transfers, roughly 55% went to elderly households. The remainder was split more proportionately between households with children ($290 billion) and those without children ($260 billion).
  • Allocation of federal spending on other goods and services (defense, transportation, judiciary, environmental protection, international relations, research, etc.) is more problematic. CBO used two methods to distribute $1.1 trillion in federal spending—proportionate to population and proportionate to a share of market income. Both methods have their weaknesses and may distort how households actually benefit from these types of spending.
  • $310 billion in federal spending which includes interest payments on the public debt, transfers to residents of long-term care institutions, and transfers to individuals living outside the U.S. and territories was not allocated by CBO.

On the tax side, CBO reports that of the $2.4 trillion collected in revenue:

  • Elderly households contributed 15% (which is equal to their percentage of the population); households with children contributed 39%; and households without children contributed 44%.

Click here to view graph.

  • On average, elderly households received $14,000 more in transfers than they paid in taxes. These households received $28,800 in transfers ($16,500 in cash/noncash and $12,200 in health care) and paid $14,800 in taxes on an average market income of $56,200.
  • Nonelderly households with children, on average, paid about $17,000 more in taxes than they received in transfers. They received $7,300 in transfers ($4,900 in cash/noncash and $2,400 in health care) and paid $24,200 in taxes on an average market income of $100,100.
  • Nonelderly households without children, on average, paid about $16,000 more in taxes than they received in transfers. They received $5,000 in transfers ($3,500 in cash/noncash and $1,500 in health care) and paid $20,800 in taxes on an average market income of $80,300.

Click here to view graph.

  • The combined effects of transfers and taxes raised the average income of elderly households by 25% and reduced the average income of households with children by 17% and by 20% for households without children.

Accordingly, proposals dealing with public financing of LTSS need to include reforms to existing programs to stretch the current dollars further. Improvements to the service delivery programs are important to maintaining public confidence that transfer programs are well designed and efficient in order to keep costs as low as practical while in pursuit of the goals for which the programs are intended.

(All charts utilized from The Distribution of Federal Spending and Taxes in 2006)