Methodology

This version of the Government Cost Calculator uses the most recent data available as of March 1, 2016, and was constructed using the following methodology:

In order to accurately project and personalize the cost of federal government expenditures, the Government Cost Calculator uses a variety of data sources and assumptions in creating the estimates. The Calculator uses data from the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to construct accurate estimates of projected federal expenditures. To determine how these expenditures affect American citizens specifically, the Calculator then draws on data from the U.S. Bureau of Labor Statistics and U.S. Census Bureau to create a detailed picture for the individual. The model we use relies on some simplifying assumptions both implicit and explicit, which we have summarized in the following outline. Have more questions? Contact us for more information or more details regarding the estimates provided by the Calculator.

1) Individual Share of Taxes and Spending
2) Individual Life Expectancy
3) Current Year Calculations
4) Future Federal Spending
5) Future Federal Tax Revenue
6) Future Federal Debt
7) Alternative Value of Tax Contributions
8) Future GDP Projections
9) Individual Income
10) Other Sources and References

1) Individual Share of Taxes and Spending ^Top

FS(y) = Projected federal spending in year y
FT(y) = Projected federal taxes to be collected in year y
GDP(y) = Projected GDP of the United States in year y
I(y) = The individual’s projected annual income in year y
ST(y) = The individual’s share of taxes in year y
SS(y) = The individual’s share of spending in year y

ST(y) = (FT(y)/ GDP(y)) * I(y)

SS(y) = (FS(y)/ GDP(y)) * I(y)

The lifetime share of taxes and spending are the totals of the shares in every future year of an individual’s remaining lifespan.

CY = The current year
LY = The last projected year of the individual’s life
STL = The lifespan share of taxes for the individual
SSL = The lifespan share of spending for the individual

STL = greek_sigma (y=CY to LY) ST(y)

SSL = greek_sigma (y=CY to LY) SS(y)

2) Individual Life Expectancy ^Top

The CDC projects the life expectancy of individuals based on their current age. [1]

From this data, we derive a logistic function from a regression analysis to model the number of years of remaining life based on a person’s current age, which we then adjust to account for the long-term trend for the annual average increase in life expectancy since 1947, which increases at a rate of approximately 0.18 years per year:

A: user’s current age
e: the mathematical constant equal to approximately 2.718
CY: the current year
BRY(A): Projected remaining years of the user, based on current life expectancy
RY(A): Projected remaining years of the user, adjusted for long term trends in improving life expectancy
LE(A): The total life expectancy of the user

BRY(A) = (436.82*e^(245.05/(A-141.79))) + 0.74

RY(A) = BRY(A) + .18(CY-2008)*BRY(A)/BRY(0)

LE(A) = A + RY(A)

[1] United States Life Tables, 2008. Tables 1 and 19.
ftp://ftp.cdc.gov/pub/Health_Statistics/NCHS/Publications/NVSR/61_03/Table01.xls (Accessed 2/4/14)

3) Current Year Calculations ^Top

Calculations for federal spending, tax revenue, and debt in the current year are based on data from the , which was released on February 9, 2016.

4) Future Federal Spending ^Top

Discretionary federal expenditures are those that require Congressional approval each year, covering the operation of each of the departments and agencies of the U.S. government. Discretionary federal expenditures from 2016 through 2021 are based upon the White House Office of Management and Budget’s Budget of the U.S. Government for Fiscal Year 2017 Historical Tables. (Accessed February 9, 2016.) Beyond 2021, we extend the projected baseline trends for discretionary expenditures out to 2090.

Mandatory federal expenditures from 2016 through 2090 are based upon the CBO’s “Extended Alternative Fiscal Scenario, Without Economic Feedback” reported in the CBO’s The 2015 Long-Term Budget Outlook. (Accessed June 16, 2015.) Mandatory federal expenditures include such items as Social Security, Medicare, Medicaid, Affordable Care Act Exchange Subsidies, and Net Interest payments on the national debt.

Beginning in 2013, the CBO stopped estimating both Net Interest and the amount of the portion of the U.S. national debt that is held by the public for years after which the national debt exceed 250% of the nation’s GDP, recognizing that having a national debt burden above this level will produce an adverse feedback loop (also known as a “death spiral”) that will negatively impact both the nation’s GDP and the interest rates that will apply for the federal government’s debt. The CBO believes it cannot reasonably project future federal spending after such an adverse feedback loop has developed, which for their most recent estimate, will occur in 2055.

The MyGovCost calculator assumes no adverse feedback loop develops when the publicly-held portion of the U.S. national debt exceeds 250%, which is consistent with how the CBO used to project both Net Interest and the size of the publicly-held portion of the national debt before 2013. Here, the MyGovCost calculator takes the size the primary budget deficit projected in future years as a percent share of GDP, adds an additional 0.8% to it to account for the hidden budget deficit represented by the U.S. government’s borrowing to fund its direct loan programs (such as for Federal Direct Student Loans), with the result representing the full federal budget deficit.

That amount is then added to the previous year’s projection of the amount of the publicly-held portion of the U.S. national debt, with the Net Interest payments being set at 4.1% of that amount, which is consistent with the trend in Net Interest payments projected by the CBO in the ten years prior to when the publicly-held portion of the national debt reaches 250% of GDP.

5) Future Federal Tax Revenue ^Top

We use the CBO’s projections as the source of tax revenue as a percentage of GDP from FY 2016 to 2090 as presented in the The 2015 Long-Term Budget Outlook. (Accessed June 16, 2015.). Because of the uncertainty of future tax law, from 2015 on, we use a value of tax revenue of 18.3% of GDP, a level consistent with the average since World War II, and a level consistent with the increased tax burden projected by the CBO in the future.

The long-term average of the federal tax revenue from 1946 through 2014 is 17.2% of GDP, with a standard deviation of 1.2% – a remarkably stable level of tax collection even though tax rates have ranged widely during this time.

We should note that periods in which the federal government’s total tax receipts have risen above a one standard deviation difference with the mean has coincided with unique circumstances, such as in 1968-1969, where a 10% income surtax was applied to top income earners, 1980-1981 where tax revenues were inflated due to the hyperinflation of the period (prior to indexing tax brackets for inflation) and the period from 1997-2000 which coincides with the Dot-Com Bubble. We observe that none of these factors could be sustained and were often followed by significant drops in tax receipts as a percentage share of annual GDP.

We also note that the federal government’s personal income tax receipts demonstrate the same phenomenon, being very stable with as an average percentage share of GDP of 8.0% with a standard deviation of 0.8%. This is all the more remarkable given the extreme variation in the maximum tax rates that have applied throughout the period, from as high as 92% to as low as 28%.

In 2016, the maximum federal marginal income tax rate for the top income earners in the U.S. is 43.4% (for the self employed or those with significant investment income), which for salary and wage earners, combines the top regular income tax rate of 39.6% with the Medicare payroll tax rate of 2.9%, which is split equally between employers and employees (where the self employed will pay the full rate) and the so-called Additional Medicare Tax rate of 0.9% (“so-called” because none of it actually goes to the Medicare trust fund).

Meanwhile, high income earners with significant ordinary dividends or short term capital gains in 2015 will pay the 39.6% top income tax rate, plus an additional 3.8% on their investment income to reach the same top marginal tax rate on their income of 43.4%

In addition to Personal Income Taxes, Federal Total Tax Receipts are supplemented by Corporate Income Taxes, Social Security and other Payroll Taxes, Capital Gains Taxes and various Excise Taxes. We note that Corporate Income Tax Rates have generally fallen throughout the period since 1946, offset by significant increases in Social Security and other Payroll Taxes, for which corporations match their employees tax payments. Excise taxes have also generally risen throughout the period. The combination of these taxes add up to a 9.8% share of GDP, with a standard deviation of 0.5% for the period from 1946 through the present.

6) Future Federal Debt ^Top

The total federal debt at the end of fiscal year 2014 was $17.794 trillion. Estimates for future levels of debt at the end of a fiscal year y are estimated by adding the projected levels of federal spending (including interest) to the previous year’s debt and then subtracting projected tax revenue.

Debt(y) = Debt(y-1) + Spending (y) – Tax Revenue (y)

7) Alternative Value of Tax Contributions ^Top

The estimate of the alternative value of tax contributions considers a scenario where all the money an individual is projected to pay in future taxes is instead deposited into an account and earns a standard rate of return. The assumed real rate of return is 6.09%, the average since 1871.

This model is based on the regression analysis of the S&P 500 in the period from January 1871 through May 2009. The average compound annualized rate of return is adjusted for the effects of inflation, which is taken as the average annualized rate of change for the Consumer Price Index for All Urban Consumers since 1913. [4] This real rate of inflation is estimated according to the Fisher equation. [5]

These models for each level of stock market performance are based on historic S&P 500 data [2], whose original source is maintained by Yale’s Robert Shiller [3].

[1] Political Calculations. Remapping S&P 500 Performance Since 1871. http://politicalcalculations.blogspot.com/2009/06/remapping-s-500-performance-since-1871.html. Accessed 11 December 2009.

[2] Political Calculations. The S&P 500 At Your Fingertips. http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html. Accessed 11 December 2009.

[3] Shiller, Robert. Stock Market Data Used in Irrational Exuberance. http://www.econ.yale.edu/~shiller/data/ie_data.xls. Accessed 11 December 2009.

[4] Political Calculations. Mapping Inflation Extremes Since 1913. http://politicalcalculations.blogspot.com/2006/11/mapping-inflation-extremes-since-1913.html. Accessed 1 January 2010.

[5] Wikipedia. Fisher Equation. http://en.wikipedia.org/wiki/Fisher_equation. Accessed 1 January 2010.

CY = Current Year
DY = Death Year
AR = Alternative return
ST(y) = Share of taxes in year y
RR = 1.0609 (real rate of return)

AR = greek_sigma (y=CY to DY) ST(y) * RR^(DY – y)

8) Future GDP Projections ^Top

GDP Projections for 2016 through 2026 are based Congressional Budget Office’s Budget and Economic Outlook: Fiscal Years 2016 to 2026. (Accessed January 25, 2015).

After 2026, we use a modeled nominal GDP from 2027 through 2090 of 2.3% Real GDP Growth plus 2.1% inflation for a nominal growth rate of 4.4%, as the CBO projects in its The 2015 Long-Term Budget Outlook (Accessed June 16, 2015).

We should note that the U.S. Bureau of Economic Analysis issued a massive revision of GDP in July 2013 as it introduced a new methodology for calculating the nation’s Gross Domestic Product. The new methodology reclassifies some business research and development expenditures for producing intellectual property as a product in its own right, rather than as an intermediate cost of the production of other goods or services. The effect of this change works to boost the level of GDP over the level indicated by the older methodology.

The CBO has adopted the same methodology in producing its forward projections of economic growth. For the MyGovCost calculator, this change mainly affects calculations involving government spending as a percentage share of GDP, where results produced with the newer values of GDP will not match the results users may have previously obtained from the calculator that were based on pre-revision data.

9) Individual Income ^Top

The projections for the future share of spending and share of taxes on an individual basis depend on the income the person is projected to earn in future years. This future income trajectory is modeled as polynomial equations based on data from the US Census Bureau. The Calculator makes no assumptions about retirement.

The Calculator uses generalized income patterns for educational degree level by using Census data 1997-2007 to project individualized income trajectories. These are estimates and users should interpreted these figures broadly.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2008, Work Experience in 2008, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://www.census.gov/hhes/www/cpstables/032009/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2007, Work Experience in 2007, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032008/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2006, Work Experience in 2006, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032007/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2005, Work Experience in 2005, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032006/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2004, Work Experience in 2004, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032005/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2003, Work Experience in 2003, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032004/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2002, Work Experience in 2002, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032003/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2001, Work Experience in 2001, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032002/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2000, Work Experience in 2000, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032001/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 1999, Work Experience in 1999, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/032000/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 1998, Work Experience in 1998, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/031999/perinc/new01_001.htm. Accessed 2 February 2011.

U.S. Census Bureau. Current Population Survey (CPS). Annual Social and Economic (ASEC) Supplement. PINC-06A. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 1997, Work Experience in 1997, Race, Hispanic Origin, and Sex. Both Sexes, All Races.
http://pubdb3.census.gov/macro/031998/perinc/06A_001.htm. Accessed 2 February 2011.

10) Other Sources and References ^Top

Bureau of Labor Statistics. “Table 2. Income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008“. Accessed 16 November 2009.

Bureau of Labor Statistics. “Table 3. Age of reference person: Average annual expenditures and characteristics, Consumer Expenditure Survey 2008“. Accessed 16 November 2009.

Bureau of Labor Statistics. “Table 2301. Higher income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008“. Accessed 16 November 2009.

Congressional Budget Office. The Long-Term Budget Outlook, June 2009. Accessed 4 December 2009.

Henry, Tamara. Report: Greater percentage of Americans educated. USA Today. Accessed 2 December 2009.

National Taxpayers Unions. History of Federal Individual Income Bottom and Top Bracket Rates. Accessed 8 December 2009.

National Center for Health Statistics. United States Life Tables 2004. Accessed 11 December 2009

Political Calculations. A Different Kind of Bracketology, Part 2. Accessed 7 December 2009.

Political Calculations. Age and Income Driven Spending. Accessed 19 November 2009.

Political Calculations. Hauser’s Law. Accessed 9 December 2009.

Political Calculations. How Much Longer Can You Expect to Live? Accessed 11 December 2009.

Political Calculations. Mapping Inflation Extremes Since 1913. Accessed 1 January 2010.

Political Calculations. Remapping S&P 500 Performance Since 1871. Accessed 11 December 2009.

Political Calculations. The S&P at Your Fingertips. Accessed 11 December 2009.

Political Calculations. The Trigger Point for Taxes. Accessed 10 December 2009.

Shiller, Robert. Stock Market Data Used in Irrational Exuberance. Accessed 11 December 2009.

Social Security Administration. 2009 OASDI Trustees Report. Table VI.F6. Selected Economic Variables, Calendar Years 2008-85. Accessed 7 December 2009.

Social Security Administration. 2009 OASDI Trustees Report. Principal Economic Assumptions. Accessed 7 December 2009.

U.S. Census Bureau. Detailed Income Tabulations from the Current Population Survey, 1997-2008. Accessed 31 May 2009

U.S. Census Bureau. 2008 National Population Projections. Table 3. Resident Population Projectons: 2008 to 2050. Accessed 11 December 2009.

U.S. Census Bureau. 2009 ASEC (2008 Income) Person Table PINC-01. Accessed 2 December 2009.

White House Office of Management and Budget. Budget of the United States Government Fiscal Year 2008. Accessed 4 December 2009.

White House Office of Management and Budget. Table 1.2. Summary of Receipts, Outlays, and Surpluses or Deficits as Percentages of GDP: 1930-2014. Accessed 29 November 2009.

White House Office of Management and Budget. Table 1.2. Summary of Receipts, Outlays, and Surpluses or Deficits as Percentages of GDP: 1930-2014. Accessed 24 July 2010.

White House Office of Management and Budget. Table 1.2. Summary of Receipts, Outlays, and Surpluses or Deficits as Percentages of GDP: 1930-2021. Accessed 9 February 2016.

White House Office of Management and Budget. Table 3.2. Summary of Receipts, Outlays, and Surpluses or Deficits as Percentages of GDP: 1930-2021. Accessed 9 February 2016.

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