It is interesting, and surprising, that so many people think more money is spent on scientific endeavors – such as by NASA – and on the national defense, than on social needs.
Two authoritative sources for budget information are:
The Federal Reserve Archive (FRASER) site:
http://fraser.stlouisfed.org/publication/?pid=54
The Office of Management and Budget site:
http://www.whitehouse.gov/omb/
The below information is somewhat dated but still relevant. Updates to come!
If you have no patience to read, a summary: the majority of tax revenue is not actually income tax, and despite the current fluff fad the fact is that the top 10% of income earners pay 70% of the income tax burden already. And then pay even more tax via capital gains, effectively being taxed a 2nd time around (even though they assumed all the risk). And all of us reap the rewards of investing in the stock market, as that is where all of us have our retirement accounts now (typically in 401K or 401b plans from our employers) which by federal law cause us to default invest in “targeted funds” – mutual funds designed to take a lot of risk in stocks when we are young, and shift to low-risk bonds and other investments as we age. All of us are therefore stock holders and affected by regulations and taxes against corporations as well.
The following link provides a pie graph at Wikipedia which presents the 2011 US Federal budget, and references the sources above (as well as many others):
http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2011.png
The #1 largest slice of the pie is Medicare and Medicaid at 23%, followed by Social Security at 20%. National defense comes in third at 19%. However, even defense spending contains social benefits, as $141 billion out of $929 billion is spent on veteran’s benefits. And why are programs like Social Security and Medicare in trouble and growing as a percentage of expense? Because the population is shifting to more people being retired. Note that while in 1960 there were five workers paying in for every one taking out, the ratio in 2009 is three to one. That is not sustainable and changes have to be made (hopefully sooner rather than later). One solution would be to allow more immigration of highly skilled jobs to increase tax revenue, but we will cover that another day. Otherwise, the most likely remaining solution is to cut benefits… unpopular, but likely necessary. People my age have grown up expecting that they may never see their Social Security benefits (how very unfortunate and depressing, because my statements show such a nice benefit coming if I can just live long enough). The wikipedia article states Social Security will run out of funds in the “trust fund” in 2036 if no changes are made, and an automatic reduction in benefits to 75% would occur.
Note that 6% of the budget is spent on paying interest on the national debt – and that figure is increasing as we continue to increase the debt. If interest rates rise, and they will, it will become a worse situation as Federal Treasury Bills will have to pay more interest to be competitive with other investment options.
The money for this budget comes from taxes, of course. In the same wikipedia article, it is stated that $2.3 trillion – yes, trillion – dollars were collected in federal taxes, which is slightly over 15% of our overall gross domestic product. That is, 15% of the money generated by the US economy goes to the federal government in taxes…
On a related note of misconception about taxes and budget, it is fashionable to say the rich aren’t paying their fair share. How is it then that the top tax rate in our “progressive” tax system is currently 35%, while the lowest rate is 10% (actually, 0% if you don’t make enough to be taxed)? However, after stimulus plans, writeoffs and credits, about half of the people pay no income tax at all. This is unlikely to be the rich and more likely to be the poor and middle class who are not paying… It is interesting that our current President claims to want to tax the rich more, but at the same time has also supported a national sales tax (a value-added tax, or VAT, such as the U.K. has) and also wants to eliminate the write-off for mortgage interest. You read that correctly: a Democrat President wants to eliminate the single biggest tax write-off that most middle-class families have available to them. And just think how that would affect an already-battered housing industry, the very industry that created the recession! But again, a topic for another day.
Another great topic is how income tax differs from capital gains tax. In the great winds of political debate and so-called news, the current Republican candidate has been attacked for paying only 15% tax on much of his income. What people fail to hear or understand is that he is paying 15% on the gains that his investments are making – not on a salary or business income. In other words, he saved and invested money – money he already paid income tax on – and now also pays capital gains on the income from he invested. Obviously, he has paid much more than 15% when you realize the situation. But that’s not how the information is presented. Ask yourself this question: why should the federal government be entitled to tax you on any investments you make, when you already paid income tax on the money your are investing? The government did nothing to protect that money or provide you a service, but they get to tax you a second time around. Think also about what would happen if we raised the taxes on investments. You might think that only affects the rich, but you’d be wrong: how about your retirement? How about the fact that even if it did affect only rich people, what would happen if the rich decided just to keep their money in banks instead of investing it, because capital gains taxes were too high to make the risk worthwhile? That would cause a depression in stock values – and affect the retirement accounts of every middle-class worker out there. In short, we are all connected in many more ways than you may be lead to believe. Again, another area worthy of a long paper by itself.
In closing on this topic of budget and taxes, consider this:
From the wikipedia article, this graph shows that only 47% of federal taxes are from income taxes. http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png
And, as this USA Today article explains (http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/buffett-tax-millionaires/50480226/1), “The 10% of households with the highest incomes pay more than half of all federal taxes. They pay more than 70% of federal income taxes, according to the Congressional Budget Office.”
That’s right, the richest 10% are already paying more than 70% of the income tax collected in the U.S. If anything, wouldn’t that indicate that plenty of lower-middle class are paying little or nothing? Don’t you have to ask yourself: what is the point of coming to the “land of opportunity”, working and saving to achieve personal wealth, and then pay 70% of the personal tax burden for the country? If you want fair, have everyone pay 20% of every single dollar they make after the first $15K, and think how much money the government can save by shrinking the IRS and how much time and money we can all save by getting rid of tax lawyers 🙂
By the way, I do not support either major political party or candidate in the U.S. at this time. The above information is provided to help stimulate you to seek out your own information from authoritative sources.