What Happens to All That Tax Money? (Hint: Most of it goes to Social Security and Medicare)
Long ago, Americans grew immune to reports of federal spending in the billions and then the trillions. It is almost impossible to shock taxpayers.
Nevertheless, they do pause every year when they pay their income tax and ask where the money goes and why the government keeps asking for more.
According to the Heritage Foundation, in 2012 Washington collected $2.4 trillion in taxes, more than $20,000 for every American household. Washington spent $3.5 trillion, or nearly $30,000 per household. This added $1.1 trillion to the national debt.
These are the results of a federal government that spends more than it collects. It is nothing new. Annual deficits in excess of $1 trillion are now the norm. Moreover, it is bound to get worse.
The federal government got a windfall in tax revenue earlier this year because of the fiscal cliff deal. Taxpayers also took a hit when taxes deducted from paychecks went up. Now they can look forward to tax hikes associated with Obamacare and any additional tax increases that may follow a so-called grand bargain on the federal budget later this year.
Taxpayers know where the money comes from – right out of their hides every paycheck and every April 15. Nevertheless, it is instructive to take a quick look at where it goes.
Here is what happens to every dollar collected in federal taxes:
- 23 % goes to Medicare, Medicaid, and other healthcare expenses.
- 22% goes to Social Security.
- 19% goes to national defense.
- 19% goes to income security, such as unemployment compensation and food and housing assistance.
- 7% goes to all other federal spending, including 3% for transportation and 1% for K-12 education.
- 6% goes to net interest.
(Source: White House Office of Management and Budget.)
As Heritage notes, these figures point to the urgency of reforming ballooning entitlement programs. With 45% of federal spending going to Social Security and healthcare entitlements, the future looks dire for younger taxpayers. These taxpayers will bear the burden of either higher taxes to support these programs or the cost of increased government borrowing to meet the demand.
For beleaguered taxpayers, it is not only the deductions they see from each paycheck or the checks they write on April 15. It is also the cost of complying with an increasingly complex tax code.
It is estimated that Americans spent $168 billion in 2010 to comply with the tax code. Moreover, taxpayers spent 6.1 billion hours, or 51 hours per household, to complete all the required tax filings.
April 15 is a bad day for every American taxpayer. Their government takes far too much of their hard-earned money and then complains that it is not enough. So it compels them to pay more and borrows the rest.
Federal officials are asking for a taxpayer backlash that could shake them at their roots. If they are wondering when they might feel the full impact of the backlash, they should pull out their calendars and circled the date of the next election.
During the course of his career, Walker has worked in Chicago, Washington DC, New York City, and Phoenix. He served as a reporter in Chicago, a press secretary and speechwriter in Washington, and in numerous positions in New York in corporate and financial services communications.
Walker is a graduate of the University of Wisconsin and the Medill School of Journalism at Northwestern University.