Where your tax dollars go after you pay the IRS
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Last week, for most Americans, represented Tax Freedom Day – meaning you spent all of January, February, March and roughly half of April – paying Uncle Sam.
But now that your taxes are paid, where does the money go?
This year, according to Office of Management and Budget figures, Washington will collect $26,198 per household – but spend $33,054. That $6,856 gap is what Congress put on a credit card.
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More than a third goes to Social Security and Medicare. A typical couple retiring today pays $543,000 into Social Security, but will take out $616,000 in benefits, according to an Urban Institute study. Medicare: $140,000 in, $420,000 out.
"We would have to more than double family taxes just to pay the benefits that have been promised," said Manhattan Institute economist Brian Reidl. "And it is only getting worse with 74 million boomers retiring at the rate of 10,000 a day."
Congressional generosity also extends to many social programs – food stamps, Medicaid, welfare. Currently the anti- poverty budget costs $6,112 a year per household, considerably more than the $5,100 spent on the military, which has actually fallen since the height of the War on Terror following 9/11.
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"Defense spending was half the federal budget in the 1960s, 30 percent in 1980s. Right now, it's only 15 percent headed down to 12 percent," Reidl said. "So defense spending is actually making a smaller imprint on your family's spending than it used to."
But decades of overspending has taken a toll elsewhere. Interest on the national debt is 7 percent of the budget, or almost $2,500 a year per household.
"Interest is the ticking time bomb," Reidl said. "You have soaring deficits and interest rates that are about to go up. This year, its $2,500. In a decade, it will be $10,000 in taxes if interest rates rise significantly, which most economists will not be surprised to see."
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The rest of your $33,000 pays for veterans ($1,300), federal pensions ($1,000), homeland security ($546) education ($537), the Food and Drug Administration ($533), highways ($487) and foreign aid ($371).
Despite “pay-as-you-go rules,” federal spending grew $5,000 per household the last decade and the Congressional Budget Office projects it will rise another $9,000 the next decade. The problem is entitlements.
Congress now only votes on only one-third of the budget that is discretionary. The other two-thirds of spending is on auto pilot, cost of living increases built into social-support programs, making a 'balanced budget' nearly politically impossible.
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"It’s really difficult when seniors are going to spend one-third of their adult lives in taxpayer-funded retirement and we're squeezing out every other priority that goes to those under 65," Reidl said.
So while it’s natural to complain about how much you pay in taxes, the fact is most Americans will get back more than they put it, but only realize it after they retire.