Driving around town a few years ago, I enjoyed a genuine LOL moment. The local NPR station was running a “man on the street” story. Was Boston’s “Big Dig” highway project, just-completed for $15+ billion, “worth it?”
Citizen after good citizen weighted in. The project took way too long and cost way too much but all agreed that, its services now available, it most definitely was “worth it.” Not to mention, wicked awesome.
The $15 billion was an abstraction. The shiny new tunnels and bridges were here, and real.
I don’t object to anyone feeling that the Big Dig was worthwhile, for $15 billion. I for one really, really like my Big Dig-enabled 16 minute trip to Logan airport.
I do question the economic meaningfulness of the question, “Is your highway worth $15 billion?” How do we conceptualize $15 billion? Does it matter how much, if any, of the $15 billion comes from the evaluator? How about: Would you prefer this highway, or 500 new elementary schools? Or, would you be willing to write a check for your share of the cost?
To personalize the value of federal governmental projects, I use my “Divide-by-50-Million” rule. Take the cost of a federal program. Divide by 50 million. That’s the average share of cost for every tax-paying American family. As in:
· Cash for Clunkers. Your cost to pimp out your neighbors’ driveway? $60. [$3 billion / 50 million]
· Electric car energy grants. Your contribution for grants and loans for electric batteries vehicles? $500. [$25 billion / 50 million]
· Total 2009 “stimulus” bill. Sooner or later, we’ll need $15,740 from each of you. [$787 billion / 50 million]
Among other applications, I put the Divide by 50 Million rule into practice earlier this year on the cusp of the automaker bailout. Estimates of the eventual cost of a government bailout of automakers ran between $25 and $100+ billion. I assumed we’d be in for $50 billion. So I asked a score of friends and family, mostly liberals, if they’d be willing to pay $1,000 themselves [$50 billion / 50 million] to save GM and Chrysler. Only one of twenty said yes. (He works for Ford.)
Here's one you can play at home. The round numbers being offered for "health
care insurance reform is $100 billion per year, forever, and also rising faster than inflation. Now, try to find a dozen families willing to write a check from their own account for $2,000 per year to pay for other people's insurance. Go ahead, I'll wait.
Why is 50 million the right number for a country with over 300 million inhabitants?
First, families, not individuals, are the basic economic entity in the U.S. According to the Census Bureau, we have 78 million families, with an average of 3.22 people each. But then we have 49 million other people, living with “unrelated persons,” or alone. To line up with a simple rule of thumb, this reality is a bit awkward. Not as awkward as neglecting to tell Mom that you moved in with your girlfriend, but still... To get to a four-word rule, we need to do some simplifying. So let’s take those "unrelated persons" and combine them into family equivalents of 3.22 people. This gives us 15 million more family-equivalents, leaving us a country with a total of 93 million family equivalents.
Next we need to estimate how many of these families pay taxes.
According to the Treasury, using 2007 returns, half of tax filers pay no, or almost no, income taxes. To be precise, as a group the top 50% of tax filers (measured in adjusted gross income) pay 97% of taxes and the lowest 50% of filers pay 3% tax revenue. (Coincidentally, the bottom 50% also, on average, have a 3% effective tax rate.) So a modest share of the lowest half of taxpayers do pay some tax, but a finer cut of the tax data appears unavailable. I use an guesstimate of 55% as the share of tax filers which pay a material amount of tax. When we apply “55% of tax filers” to 93 million family-equivalents, an round off a bit, we get a working estimate of the share of families which pay taxes – 50 million.
Let’s apply our Rule back to the Big Dig. The federal government picked up about 70% of the tab, a bit more than $10 billion. That’s $210 for every tax-paying American family. Thanks, Texas! The remaining bill is and will continue to be funded by MA taxpayers. With about 2.5 million state family taxpayers, we’re each working off our shares of $1,800 each, or an even $2,000 counting in the federal portion.
So the relevant question for our local NPR station to ask might be, “Is the Big Dig worth your writing a check for $2,000?”