As another tax day arrives, Americans are surely wondering where their hard-earned federal taxes go.
This year, Washington will spend a staggering $35,148 per household and collect $26,677 per household in taxes. The resulting budget deficit of $8,471 per household will bring the total national debt to $177,000 per household.
Federal spending has soared nearly $7,000 per household since 2007 and is projected to rise another $7,000 over the next decade (all numbers in this article are adjusted for inflation). Unless spending is reined in, tax increases must eventually result.
All families have their own level of taxation and distribution of benefits. Yet using the national averages, Washington will spend this year’s $35,148 per household as follows:
Social Security/Medicare: $13,178. The 15.3 percent payroll tax, split evenly between the employer and employee, covers most of Social Security's and a small portion of Medicare's costs. The typical couple retiring today will receive Social Security benefits 13 percent higher than their lifetime contributions, and Medicare benefits that are triple their lifetime contributions into the system, even after adjusting for inflation and net present values. As 74 million retiring baby boomers are added to this fragile system, paying all promised benefits would eventually require raising the payroll tax to 33 percent, or imposing a 34 percent value-added tax (basically, a national sales tax).
Anti-poverty programs: $6,483. Half of this spending subsidizes state Medicaid programs that provide health services to poor families. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child care subsidies, Supplemental Security Income (SSI) and low-income tax credits. President George W. Bush increased anti-poverty spending from $3,700 to $4,800 per household, and President Obama expanded it past $6,000, mostly due to ObamaCare costs.
Defense: $5,312. The defense budget covers everything from military paychecks, to operations in Iraq and Afghanistan, to the research, development, and acquisition of new technologies and equipment. Defense spending was substantially higher during the Cold War, before the Soviet collapse allowed late 1990s-lawmakers to slash defense to $3,900 per household. After the War on Terror pushed it back to $6,800 per household by 2010, deep cuts followed by recent increases have left the defense budget at $5,300 per household.
Interest on the national debt: $3,054. The federal government is $22 trillion in debt. It owes $17 trillion to public bond owners, and the rest to other federal agencies (mostly to repay the Social Security trust fund, which lawmakers raided annually before the program fell into permanent deficit in 2009). Record-low interest rates have recently held down interest costs. However, the national debt is in the process of surging to nearly $38 trillion by 2029 (it stood at $10 trillion in 2008), which will push annual net interest costs to nearly $6,000 per household – or double that cost if interest rates rise back to normal levels.
Veterans’ benefits: $1,556. The federal government provides income and health benefits to military veterans. Spending has nearly tripled since 2001 as new wars brought new veterans.
Federal employee retirement benefits: $1,154. A portion of this cost is offset by federal employee payroll contributions.
Education: $876. Education spending is primarily a state and local function; 9 percent of the K-12 total comes from Washington. Most federal dollars are spent on low-income school districts, special education, and college student financial aid.
Justice administration: $557. Justice spending includes federal attorneys and prisons, as well as law-enforcement grant programs. Post-9/11 homeland security costs have modestly expanded this category.
Health research/regulation: $533. This spending includes the National Institute of Health, Centers for Disease Control, Food and Drug Administration, and dozens of grant programs for health providers.
Highways/mass transit: $493. The 18.4 cent per-gallon federal gas tax finances most of these costs. Washington subtracts an administrative cost and sends this money back to the states with numerous strings attached.
International affairs: $422. This includes foreign economic and military assistance, operation of American embassies abroad, and contributions to organizations such as the United Nations. International spending has doubled since 9/11.
The programs listed above cover $33,618 per household. The remaining $1,530 is allocated to all other federal programs, including natural resources and the environment, disaster aid, unemployment benefits, economic development, farm subsidies, social services, space exploration, air transportation, and energy.
Armed with this information, the final questions are whether the taxpayers getting their money’s worth, and whether the federal budget reflects their priorities.
And who represents the kids who will inherit much of the bill?
Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter @Brian_Riedl.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.