In 1 Graphic, Here’s What Uncle Sam Is Doing With Your Tax Money

Unless we can reverse course, it is only a matter of time before the taxman comes knocking.

By Published on April 14, 2018

Last month rapper Cardi B asked a slightly more profane version of the same question many Americans ask when they file their taxes.

“Uncle Sam, I want to know what you’re doing with my f—ing tax money.”

That’s a good question. The average American household sends more than $20,000 to Washington in tax revenue each year, and most see little in return.

In 2017, the federal government nabbed more than $3.3 trillion in taxes — but that still isn’t enough to satiate Washington’s immense appetite for spending. The 2017 deficit was a whopping $665 billion.

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So where do our tax dollars go?

Some believe most of it goes to welfare programs and foreign aid. Others believe defense and corporate subsidies dominate the budget.

Entitlements

In reality, health entitlements — Medicare, Medicaid, Obamacare — and Social Security are the largest programs. If Congress continues its current policies, these entitlements and interest on the debt are set to consume every dollar of taxes paid by 2027. That’s less than 10 years away.

taxmoneygraphic

Right now, federal health programs such as Medicare, Medicaid, and Obamacare subsidies currently consume 28 percent of the budget. Federal health spending is projected to grow on an unsustainable trajectory of 6 percent per year over the next 10 years. That growth rate is about three times the projected pace of economic growth over the same period.

Meanwhile, Social Security, the single largest federal program, accounts for roughly a quarter of all federal spending. Its trust funds are already paying out more than they take in, and as more people retire, the system will face continued stress.

Without reform, the program’s trustees project benefits will need to be cut as much as 23 percent if nothing is done by 2034.

In the meantime, rather than slowing down, spending on all these programs is expected to dramatically increase in the near future. Combined annual spending on health entitlements and Social Security is projected to grow by 89 percent over the next decade.

Defense

Other income security programs — veterans’ benefits, food and housing assistance, federal employee retirement, and disability — account for 17 percent of the budget, surpassing national defense spending.

The defense budget covers everything from military paychecks, to operations overseas, to the research, development, and acquisition of new technologies and equipment.

At 15 percent of the federal budget, defense spending is the last major category of federal spending and has been falling as a percent of the budget for the last decade.

And the rest?

Well, interest on the debt is one big culprit.

Debt

Over the coming decade, U.S. debt held by the public is projected to balloon to over 96 percent of gross domestic product—driven primarily by health and Social Security spending. As the size of the debt grows, so will the interest costs.

Currently, 7 percent of the budget is spent on interest—money that takes away from other priorities. But in just five years, interest spending is projected to exceed national defense.

Deficit spending has many costs. Economic growth tends to slow in countries with debts that are comparable to the size of the economy, a group the U.S. is quickly joining. As the debt increases, so does the cost of the interest we must pay to those who hold the debt. China is currently the largest foreign holder of U.S. debt.

Without reforming America’s massive and growing federal programs, Washington will have to continue to borrow increasing amounts of money, piling new debt onto younger generations and worsening the nation’s already unsustainable economic course.

Spending is the Culprit With Your Tax Money

Some people will tell you that the recent tax cuts are to blame for our fiscal challenges. However, in 2018, total tax revenue is projected to increase by $22 billion. In dollar terms, tax reform was only a cut in the growth rate of revenue collection and not actually a decrease in total dollars collected by the IRS. By 2025, revenue growth will return to pre-tax reform levels.

The growing deficit is caused exclusively by more spending — every year after 2018, tax revenue is projected to grow faster than the economy.

Growing government spending threatens higher taxes on current and future taxpayers. Without serious spending reforms, taxes will go back up. Congress made much of the tax cuts temporary. After 2025, when many of the tax cuts expire, tax revenue jumps back to its pre-tax reform levels. Eventually, rising debt will leave lawmakers with limited options to avoid a financial crisis. Unless we can reverse course, it is only a matter of time before the taxman comes knocking.

In the words of Cardi B, “What is y’all doing with my f—ing money? I want to know. I want receipts.”

Increasing taxes is not the solution. Washington already takes too much of the money that Americans work hard to earn. Congress must rethink how it is spending the people’s money.

 

Adam Michel focuses on tax policy and the federal budget as a policy analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Justin Bogie is a senior policy analyst in fiscal affairs at The Heritage Foundation.

Copyright 2018 The Daily Signal

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  • Ryan

    We are seeing the effects of the redistribution desired by the last administration. Socialism has never grown any economy, it has always drained an economy by massive debt and expected the debt to take care of itself by taking more away from the people it has imposed itself on.
    Had the Russian people not had the help of the U.S. to get back on its feet at the downfall of the Soviets, it would not be in existence today. Who will help the American people if we are taken down by the socialists? No one, not even the socialists, they have never contributed to anything but the downfall of nations.

  • Thomas

    “The growing deficit is caused exclusively by more spending — every year after 2018, tax revenue is projected to grow faster than the economy.”

    Is that a typo about “tax revenue”? Did the authors mean to say that “federal spending” is projected to grow faster than the economy?

    That section of the article is about increased spending being the problem. So is the first part of that sentence. So also are the sentences that follow.

    Also, how would “tax revenue” be projected to grow faster than the economy? Revenue will grow as the economy grows, but the tax rates are not growing over time.

    Seems like they intended to make a point about the projected extra fast growth of federal spending, not tax revenue.

  • MarriedWoman

    The moment you lump Social Security and Medicare into the category of entitlements you show that you don’t understand the term “entitlement”. Social Security and Medicare are deducted from our pay so that we’re not left in abject poverty and uninsured when we retire. They are insurance policies and the money deducted from our paychecks are our insurance premiums. When you retire and start getting Medicare benefits, you still have to pay monthly premiums. If you’ve worked hard and planned ahead, you will also have some savings put aside, because social security benefits are not enough to live on, only enough to supplement your savings. Entitlement programs pay out benefits to people who have had no obligation to contribute to the system. Some of the people receiving entitlement benefits need support from the government (people with disabilities that can’t hold a job, or children with irresponsible parents for example). Others are simply lazy and have been permitted and even encouraged to take advantage of people who have the drive and dignity to work for our money. I don’t want to see people starving, or living in poverty, but I also don’t want to pay for them to sit on their butts all day, making lousy economic decisions and using up the energy of the hard working people paying into the tax system paycheck after paycheck. There is a place for “entitlement” programs in our economy, but we need to be pushing our elected officials in our government to reform these programs so the lazy, system sucking leaches don’t drain it dry, leaving those who paid into the system empty handed when we get to the point our benefits are due. At this point, I have to work until I’m 72 in order to collect full social security benefits. Meanwhile the lady in the grocery store with the 3 inch acrylics, half a dozen tattoos and perfectly coiffed hair with a pack of Marlboro lights in her purse throws free food into her shopping cart and uses her access card without ever having contributed a dime, while I use my calculator to make sure I stay within my grocery budget.

    • epsilon53

      ^ This!

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