Have you ever wondered what exactly the government does with the money it takes out of your check? Let’s explore this and see if we are getting a good return on our investment.
Taxation in America is a direct result of the American Revolution around the time of 1760, in which British taxpayers revolted against high taxes and a lack of representation from those collecting the taxes. In the new country of American colonies taxes were mainly just levied against imported items also known as tariffs, items such as whisky and glass windows were charged a tax on them to be brought into the country. There were some local taxes for the right to own property and vote but the main source of federal income was the tariffs charged to trade with other countries. The tariffs were imposed for two reasons, one to create income for the federal government to run the country and secondly to ensure an equal playing field for domestic/local producers of similar items who might be undercut by foreign producers. This was to ensure that America would have an uninterrupted supply of items necessary to survival such as wheat, sugar, meat, and wool. During the civil war the federal government enacted an income tax to help pay for the war, however they amended the constitution to in 1913 to allow for a continuance of the income tax they we still enjoy today, in fact the income tax has now surpassed the federal tariffs as the number one source of federal revenue. Fast forward to modern times and we have a wide array of different taxes such as the excise tax, estate tax, payroll tax, and many other hard to explain and hard to understand taxes. So with all of these tax dollars flowing in what does the government do with them?
All U.S. government spending can be divided into three categories, mandatory spending, discretionary spending, and interest on federal debt. America’s fiscal year runs (October 1 through September 30) and for the 2018-2019 year the federal budget is $4.4 trillion. The government estimates it will receive $3.422 trillion in revenue (taxes), which will create close to a $1 trillion budget deficit (difference in what it makes vs what it spends) in 2019. The Congressional Budget Office estimates the federal deficit will rise above $1 trillion by 2020.
In 2019, approximately $2.7 trillion of federal spending will go toward mandatory items and $1.3 trillion toward discretionary items. Because government spending significantly exceeds government revenues, the remainder will be spent on paying interest on the federal debt.
Mandatory spending consists of five categories Medicare and health, Social Security, unemployment, food/agriculture, veterans’ benefits;,and transportation. Social Security accounts for the largest mandatory spending allocation followed by Medicare.
This spending is considered mandatory because the programs are permanent and the government does not set a dollar amount that it wishes to spend in each of these categories. Instead, it creates eligibility rules by which individuals qualify to receive payments from the government through these programs. The only way to increase or decrease mandatory spending is to adjust eligibility requirements so that individuals receive more or less benefits.
There are many more categories in the discretionary spending group. Over half of discretionary spending is allocated to the military, while the remainder goes to each of the following government, housing and community development, education, veterans’ benefits, food/agriculture, Public transportation, labor, science R&D , energy, and international affairs.
There is some overlap between the mandatory and discretionary categories. The difference is that with each of the discretionary categories, the government may change how much it spends from year to year.
When all the categories of government spending are combined, Social Security is the largest expense. So if they need to make budget cuts where would they look to make the largest impact??? Better start saving for your retirement……
I will say that even though this is only a look at federal taxation and doesn’t even take a look at state and local taxes, I still think we get a fairly good deal on our taxes. We have an amazing infrastructure with a great interstate system to take us almost anywhere we want to go, we get a free public education, ( I believe that college will eventually be free) we have great social welfare for our poor, ( the poorest American’s live better than 90% or more of the rest of the world) we have the greatest military ever known to mankind, (we are the world police) we have local police and fire departments that keep us safe secure feeling, and we have the unlimited and uncapped ability to do anything and be anyone we want to be with no limits based off of age, gender, religion, or ethnicity. We have an amazing legal system that allows us to own and enforce ownership of any kind of property, and we have one of the best healthcare systems in the world. Everyday I live in awe of what I can do as an American, I can look up anything on my phone, Ipad, laptop, or desktop, or smartwatch that I want to know, heck I can order anything I want on them and have it delivered to my doorstep in a few days without me having to leave my house. I can get a soda within a few minutes that will be cold and ready for me but that has ingredients from all around the globe, plus I didn’t have to grow the ingredients, build a factory to produce it, drive a truck to ship it, build a refrigerator to cool it, or anything yet I get to enjoy the fruits of others labor for less than a dollar. LESS than a DOLLAR…. Many countries the citizens spend most of their time and income on shelter and food. I can own parts of companies through our stock market which is one of the most highly regulated markets in the world and earn profits off of others money, labor, intellect, skill, and property without ever lifting a finger. All in all I don’t mind paying taxes, if they said I could stop paying Social security taxes and be 100% responsible for my own retirement and not expect anything from the federal government would I, YES…… but am I upset that part of my earnings go to pay for elderly peoples living expenses and healthcare, nooooooo……….
If we all start to add more value to others lives and learn to live within our means, the government debt wouldn’t be a problem. The government has a budget deficit because it has to take care of those that choose not to plan to care for themselves. If the government only had to spend on the military, infrastructure, and scientific advancements they would have a huge surplus of capital, unfortunately instead of we the citizens (we are the government) being responsible for producing our own food, teaching our own children, saving for our own retirement, and caring for those that can’t care for themselves the government is forced to do what’s right and honorable in our moral absence.
Fortunately for us the government has many tax codes and laws that allow us to pay very little in taxes if we are willing to educate ourselves and play within the rules, but that is for another day and another post. I hope this post has been educational and entertaining and if it has please be sure to share it with someone else.
Chef on F.I.R.E