”Think of the federal government as a gigantic insurance company – with a sideline business in national defense and homeland security, which does its accounting on a cash basis. And an insurance company with cash accounting . . . is an accident waiting to happen.” – Peter Fisher – former U.S. Treasury Under-Secretary – Head of Domestic Finance
In advance of Tax Day I thought it an appropriate time to revisit how our federal taxes are utilized. How your tax payments are actually spent by the federal government, some very real problems we are facing and some examples of government spending gone awry.
But first, where do our federal tax revenues come from? Ultimately, they come from you and me. Individual income taxes account for 47% federal revenues. Payroll taxes account for another 34% of federal revenues. Corporate income taxes account for about 10% of federal revenues – a figure that often surprises many with its small percentage relative to income and payroll taxes. As discussed in Abolish the Corporate Tax, corporations are actually tax collectors – legal entities that serve to collect taxes on behalf of the corporation’s owners. Therefore, the true corporate taxpayers are the company’s shareholders – and perhaps, to some degree, labor and customers – not corporations. The remaining 9% comes from customs duties and excise taxes.
In fiscal year 2016 the federal government spent $3.95 trillion. About $2.7 trillion – more than two-thirds of total spending – went for social “insurance” (Social Security, Medicaid, Medicare, unemployment compensation, veterans benefits). National defense spending equaled $600 billion or 15% of federal spending. Interest on our national debt equaled 6% of federal spending.
In GDP terms, total federal spending in 2016 amounted to 21.5% of gross domestic product. As noted by the Pew Research Center; “for most of the past several decades, federal spending has hovered within a few percentage points above or below 20%. In fiscal 2009, a surge in federal relief spending combined with a shrinking economy to push federal outlays to 24.4% of GDP, the highest level since World War II, when federal spending peaked at nearly 43% of GDP.”
The biggest long-term growth in federal spending has come in human services – Medicare, Medicaid, income security, veterans benefits and social services. Federal spending on human services now amounts to 15% of GDP – and 69% of total federal spending.
This 2016 breakdown of federal spending is provided by data from the Committee for a Responsible Federal Budget. Their website is highly worth a visit.
23.6% = Social Security
24.8% = Medicare and Medicaid (15.3% and 9.5% respectively)
15.2% = National Defense
6.2% = Interest on Debt
4.6% = Veteran Spending
2.6% = Civilian Federal Retirement
2.4% = Transportation
2.2% = Refundable Credits (College, Child, Earned-Income)
2.1% = Education
1.9% = Food Stamps
1.5% = Supplemental Security Income
1.5% = Justice
1.3% = Housing Assistance
1.1% = Foreign Aid
1.1% = Affordable Care Act Subsidies
7.9% = Other – includes .4% in other health
Social Security – the single largest federal program accounts for almost one-fourth – 24% of federal spending.
Health Entitlement Programs – Medicare, Medicaid and ObamaCare subsidies – account for 27% of federal spending. The Affordable Care Act, or Obamacare will increase entitlement spending by nearly $2 trillion in just 10 years.
Income Security – Veterans benefits, federal employee retirement and disability, unemployment compensation and food and housing assistance – account for 18% of federal spending.
Defense – accounts for 15% of federal spending.
Spending on Social Security increased 17% vs 2011. Spending on Medicare increased by 15%. Spending on Medicaid increased by 25%. Spending on National Defense fell by 22%.
Although I just laid out the numbers, stop and think about the issue we are facing. More than two-thirds – 69% – of federal spending is tied to Social Security, Health Entitlements and Income Security.
And it’s only going to get worse. As I wrote in Liberals, Conservatives and Fiscal Choices:
Brian Riedl at the Manhattan Institute for Policy Research notes in his report on the CBO Budget Outlook, “Social Security, health-care entitlements, and interest on the national debt comprise 57 percent of current spending but will be responsible for 82 percent of all new spending over the next decade.”
“A decade from now, rising entitlement spending and interest on the national debt will consume 99 percent of tax revenues – forcing virtually the entire discretionary spending budget to be financed on the nation’s credit card.”
“Over the next decade, the national debt is projected to rise from $20 trillion to $30 trillion, and reach 107 percent of GDP for the first time since World War II.”
“Over the next 10 years, net interest on the debt is projected to rise to almost 12 percent of the budget, more than is projected to be spent on national defense.”
The Heritage Foundation provided an illustrative example of how government spending is out of control:
The median American family’s income is $54,000. If that family spent money like our government, they would spend $61,000 annually. To finance the difference they would place $7,000 on a credit card. Despite already being $300,000 in debt.
Meanwhile, 45.3% of Americans pay no income tax. And 26.9% of Americans pay zero or negative total taxes (receive a net benefit) when you factor in payroll taxes. And that’s a big problem. If you are not paying any of the bills it’s awfully easy to ask for more spending.
Now let’s take a look at ways in which Congress sees fit to spend the portion of your money that’s allocated into the vague “Other” category. There are two documents worth taking a perusal through – if you can handle a blood pressure raise. The first is Senator Rand Paul’s The Waste Report’s Airing of Grievances for 2016. The second comes to us from Senator Jeff Flake’s Wastebook. I encourage those subject to heart conditions, generalized fits of government-induced rage or particularly large tax bills to exercise due caution.
- The National Park Service is spending $150,000 of taxpayer money to investigate supernatural events in Alaska. “The primary objective of this project is to investigate Bering Strait Inuit residents’ beliefs and knowledge about (and experiences with) the supernatural environment…”
- A rarely used rocket launch facility in Alaska that was constructed as part of an illegal kickback scheme between midlevel Department of Defense (DOD) employees and contractors, is being kept in business by a “sole source” contract awarded by the Missile Defense Agency (MDA) that “could total up to $80.4 million. There has been only one launch from the site in the last five years, and that was a disastrous failure.
- In a failed attempt to establish an Afghan equivalent to the Army Corps of Engineers, the Department of Defense’s (DOD) physically lost $29 million of heavy equipment. No one knows where the equipment is.
- The National Comedy Center received a $1.7 million grant from the U.S Department of Commerce’s Economic Development Administration to help construct a comedy museum in Jamestown, New York that will “resurrect” dead comedians as holograms.
- At least thirteen federal agencies are spending over $2.7 billion to research global climate change; and that figure does not include the over $18 billion in additional money going to efforts to mitigate climate change.
- Honolulu (City) wasted nearly $10 million of Community Development Block Grant (CDBG) money for no other reason than to just spend federal money fast… so they could remain eligible to receive more federal funds.
- Peanuts can be forfeited to the U.S. Department of Agriculture (USDA) in lieu of cash to fulfill farmers’ financial obligations for marketing loans. The USDA peanut payback program cost taxpayers $74 million this last year.
- Fort Belvoir’s “Eagle’s Nest” Dining Facility completed a $6 million renovation, and last month (less than a year later), the facility closed its doors permanently. According to the Army, the facility only had less than a 5 percent utilization rate.
- The federal government awarded billions of dollars for California’s high-speed passenger train but not a single track has been laid. With a price tag of nearly $100 billion, this rail system is the single largest public works project currently underway in the U.S. – $3.1 Billion in federal grants have been outlaid so far.
- In an effort to get a bulk-buy discount, the EPA-Seattle bought annual mass transit passes for ALL of its employees, not just the ones signed up for the transit subsidy, resulting in the EPA, even with the discount, paying over $135k more than it would have otherwise.
- The United States Agency for International Development (USAID) plans to invest as much as $24.7 million as part of the “Climate Ready” project to help the Philippines adapt to rising sea-levels and extreme weather caused by climate change.
- More than $1.4 billion is spent every year promoting federal agencies and services. Federal contracts for advertising and public relations average nearly $1 billion a year. Another $430 million a year is spent paying the salaries of approximately 4,900 federal public relations employees.
- The Bureau of International Narcotics and Law Enforcement Affairs (INL), which is part of the Department of State, is currently advertising a $1.25 million grant opportunity to produce a superhero cartoon in Pakistan.
- The government spends over $12 billion dollars and employs almost 90,000 workers just to administer and collect taxes. The government spends around $200 million helping poor and elderly people understand and file their taxes. The government spends another $200 million for the Taxpayer Advocate, an office that can help you if the IRS is giving you an undeserved hard time.
- The Department of State through the U.S. Embassy-Kabul recently issued a $1 million funding opportunity to produce 12 episodes of a variety show in Afghanistan with the ultimate purpose of teaching English.
- The National Institutes of Health (NIH) is spending half a million dollars to study people’s rejection threshold for spice and bitterness.
- The Department of Justice (DOJ) has spent at least $54 million on expenses for employees who have been on “temporary travel” for one year or more. In one instance, a married couple both working for the DOJ relocated to Washington, D.C. One spouse transferred and received relocation assistance while the other received Extended Temporary Duty compensation.
- The government spent over $2 million of your tax money to send filmmakers around the world showing their documentaries in the name of diplomacy.
- The EPA paid out nearly $12 million on early buy-outs for roughly 500 employees. However, a sampling done by the Inspector General showed that roughly 12% of the vacated positions were not eliminated and were refilled without being changed.
- Federal employees get paid by the taxpayers to do union work costing taxpayers $157.2 million in salary and 3.4 million hours not performing governmental duties in 2012.
- The federal government spent $70k to study gender disparity among Wikipedia contributors.
If only the government cared as much about spending your money efficiently as they do about collecting it.
Happy tax day.
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