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‘Americans Are Overtaxed’ and Other Federal Budget “Myths”

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You're probably aware the U.S. government spends a lot of money and more than it brings in. But few Americans have a really good understanding of how the budget works, where the money comes from and where it goes.

In Red Ink: Inside the High-Stakes Politics of the Federal Budget, Wall Street Journal economics editor David Wessel shines a light on the federal budget and seeks to clear up some of the "myths and unrealities," including:

Politicians Choose How the Money Is Spent: Over 60% of the federal budget -- $3.6 trillion in fiscal 2011 -- is on "autopilot," Wessel notes, citing Social Security checks, Medicare, Medicaid, farm subsidies and veterans benefits that occur "without a vote of Congress."

All the Money Goes to Foreign Aid and Government Workers: Foreign aid is typically less than 2% of the budget -- "it's a pittance," Wessel says, and firing all federal employees wouldn't even cut the deficit in half.

Uncle Sam Keeps Reaching in Our Pockets: "It's not the case that people are paying more and more in taxes," Wessel says. "People are feeling the pain because wages aren't going up, that's for sure. But the fraction of paychecks that go to fed government in taxes have been steadily going down since early 1980s." (As an aside, he notes there were $1.1 trillion of tax breaks and loopholes in the code nearly as much as the $1.3 trillion the IRS collected last year.)

Another big myth about the budget, Wessel says, is that it can't be tamed.

"It's hard but not impossible," he says. "But if you're going to do something on the deficit there's only a few big levers to push: taxes, defense and entitlements. Everything else is just completely detail."

Like many D.C. pundits, Wessel has very little faith the politicians currently in Congress can work together to find a solution to America's problem of spending more than we bring in.

"At the moment, especially now before the election, if you're even seen talking to someone on the other side of the aisle you're seen as a traitor," he laments.

And like most non-partisan economists, Wessel believes the best way to address the budget deficit is through a combination of higher taxes and less spending.

"There's a view you can do this without raising taxes," he says, citing House Budget Committee Chairman Paul Ryan's plan. "Basically that requires people to take...much more belt tightening than in my judgment they're willing to take."

Citing Congressional Budget Office director Douglas Elmendorf, Wessel says the problem is "the American people want more in benefits then they're willing to send to Washington in taxes."

And maybe that's the biggest budget myth of all: That we can have our cake, eat it too and not pay for it.