WHERE DO MY TAXES GO?Federally – There are three types of spending: National Debt payments: The U.S. borrows over a trillion dollars every year, so as the government’s spending goes up, more U.S. taxes are paid to the repayment of this debt, increasing much over the past few years (2020-22). This would be like you taking a loan from the bank and needing to pay interest on the loan, but instead of capping your borrowing limit, you continue to borrow more money, owi...
WHERE DO MY TAXES GO?
Federally – There are three types of spending:
National Debt payments: The U.S. borrows over a trillion dollars every year, so as the government’s spending goes up, more U.S. taxes are paid to the repayment of this debt, increasing much over the past few years (2020-22). This would be like you taking a loan from the bank and needing to pay interest on the loan, but instead of capping your borrowing limit, you continue to borrow more money, owing more interest, even if you aren’t making more money to cover the repayment of that debt. The problem is, instead of a bank the U.S. borrows from other countries, and then has to negotiate with them in diplomacy, without them asking for their money back all at once. America has more debt than any other country in the world and still continues to borrow.
National Debt – 9% of the country’s revenue pays the debt we have racked up (which was racked up by spending what we cannot afford). To find out how much we currently owe to the minute, look at usdebtclock.org. This will also show you how much we pay towards the National Debt, Medicaid/Medicare, Social Security, Defense. This payment increases/decreases depending on how much we owe, based on the current interest rates. On Nov 16, 2021- 5:36AM CST (while I edit this book) the U.S. owed $28,967,266,775,881 to other countries, those who owned U.S. Savings Bonds, and in other forms of debt. Within a minute, that debt increased by over $1,000,000. This is all debt you, the younger generation, will have to pay.
Mandatory Spending: This is Entitlement Spending, and is not based on yearly budget review. This started with Social Security, but climbs dramatically with every new program the government creates in this category (including Medicare, Medicaid, Earned Income Tax Credit, and the Child Tax Credit). Then there are also the benefits we provide our military veterans. In total, this accounts for around 61% of our federal budget.
- Social Security (Mandatory) – Started in 1935, this program was designed to be a supplemental income for retired workers, after age 65, being paid an average of $1,503 a month. This now includes disabled workers and survivors of those workers. It is also called OASDI, Old-Age, Survivor, and Disability Insurance and is run by the Social Security Administration (SSA). It was made to be a safety deposit box of funding, taken from the younger working generation to pay for the older generation. Sadly, the U.S. Government couldn’t keep their hands off it and spent that money on other programs outside of Social Security. Now, they spend straight from those funds in the overall budget. It accounts for 39% of mandatory spending. In 2019, 64 million Americans received over $1 trillion in benefits, which is why you are charged an extra 6.2% of your paycheck (but a maximum of $8,537.40 (2020).
- Medicare/Medicaid (Mandatory) – Health insurance was developed in the U.S., in 1850. Since insurance became mainstream in the 1920s, and then with Medicare/Medicaid established in 1965, health care costs have climbed dramatically.
- Medicare is to care for people over 65, people with certain disabilities and people with some health disorders. There are four plans: Medicare Part A – general coverage or nursing facilities; Part B – doctors’ visits, outpatient services, preventive care and supplies; Part C – All parts combined; and Part D – prescription drugs. Medicare accounts for 28% of Mandatory spending. You pay this through a 1.45% payroll tax, on all income. The Affordable Care (ObamaCare) act added 0.9% for any income over $200k.
- Medicaid is to care for low-income adults, children, pregnant women, elderly adults, and people with disabilities. The costs are provided by both federal and local governments. In 2018, the U.S. spent nearly $600 billion (75%) on Medicaid spending. Most of the time, states pay the other 25% of the bill.
- VA Benefits (Mandatory & Discretionary) – These include disabled compensation, burial benefits, rehabilitation, insurance, housing, pensions, job training and education. These are paid for by both your paycheck and other taxes, including Capital Gains (more on this later, with investing).
Discretionary Spending: Congress decides on this in Washington D.C each year. They are mandated to create a budget, like at home, to map out where the money that they take in is to be spent. At home, you need to balance your budget, spending only what you make. The U.S. Government has not balanced a budget since 1998, under a Republican Congress and Democratic President, Bill Clinton. The last time they passed a budget on time was 24 years ago (1996). Over the past 19 years, they have only adopted 7 budgets. This spending includes National Defense, Homeland Security, Energy, HUD, Foreign Affairs, Transportation/ Infrastructure, Education, Veterans Benefits, Health, NASA, National Parks, General Services, etc.
- National Defense (Discretionary) – Depending on who controls the budget (Republicans generally increase, while Democrats normally decrease this budget), this accounts for nearly 48% of discretionary spending. This mainly funds the Department of Defense, and pays for all operations, equipment, personnel, and even military engagements, such as any foreign conflict we assist in. The highest discretionary spending on National Defense was under George W. Bush and least by Donald Trump. (14)
- Health – This mainly funds three agencies: Centers for Disease Control (CDC), Food and Drug Administration (FDA), and National Institute of Health (NIH), and accounts for 5% of discretionary spending and 23% of Non-Defense Discretionary spending (NDD). These are the agencies that oversee disease, pharmaceuticals, therapies, food safety, and medical research. (15)
- Transportation and Infrastructure (Discretionary) – This mainly funds the Department of Transportation and Federal Highway Administration. This accounts for 7% of discretionary spending and 19% of NDD. These funds pay for roads, bridges, airports, highways, and the administration.
- National Parks – This funds the Department of the Interior (including Bureau of Indian Affairs), and accounts for 7% of discretionary spending, and 18% of NDD spending. This pays for the conservation of natural resources (National Parks, energy, mineral, grazing, forestry activities, Indian affairs). (16)
- Education (Discretionary) – This mainly funds the Department of Education and accounts for 7% of discretionary and 14% of NDD. This includes teacher’s salaries (partially funded by states), funding research, grants, and student loans towards college for K-12 (43% of spending), higher education (29%), and employment services.
- Economic Security – This mainly includes programs such as WIC (Special Supplemental Nutrition Program for Women, Infants, and Children), Housing and Urban Development (HUD), Home Energy Assistance, Child Care, and Development Block Grants, and takes care of primary needs for those with low income.
- Law Enforcement and Governance – This mainly funds Homeland Security, Federal Bureau of Investigations (FBI), Border Patrol, and assistance to state law enforcement and domestic violence prevention. The rest of these funds pay for the Internal Revenue Service (IRS), Congress, Federal courts, the Government Accountability Office, General Administration, and other basic government operations.
- Science, Environment, and Energy – These fund agencies from NASA to the Environmental Protection Agency (EPA), and National Science Foundation (NSF) to the Department of Energy (DOE), and accounts for 11% of all NDD. This is mostly used for the research behind these topics and natural resources.
- Foreign Affairs – This mainly funds the Department of Foreign Affairs and accounts for 1-2% of discretionary spending. This is used for diplomacy and international affairs, which take up 8% of NDD. Half of these funds go to international development and humanitarian assistance (disaster relief, HIV/AIDS prevention, Peace Corps, and foreign organizations, such as the United Nations [UN] and World Health Organization [WHO]). The remainder goes to peacekeeping operations (Embassies, etc.).
