MICHEL & BOGIE: Where do your tax dollars go?

By ADAM N. MICHEL and JUSTIN BOGIE
Guest Columnists

(TNS) Good news for anyone who just finished filing their taxes for 2017: Next year, when we file our taxes for 2018, we’ll send less money to Washington.

Even better, the Treasury Department estimates that nine out of 10 Americans now have larger paychecks thanks to lower tax rates, a larger standard deduction and an increased child tax credit.

But trouble looms. Federal lawmakers still haven’t addressed their insatiable appetite for spending beyond their means. This year Americans will collectively send more than $3.3 trillion to the federal government. Yet despite all that tax revenue, the 2017 deficit was a whopping $665 billion.

So what does Uncle Sam spend your tax dollars on?

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

In reality, health entitlements 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.

Major health entitlements. Medicare, Medicaid and Obamacare subsidies currently consume 28 cents out of every budget dollar. Federal health spending is projected to grow an unsustainable 6 percent annually over the next decade. That’s about three times the projected pace of economic growth over the same period.

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

The program’s trustees project benefits will need to be cut as much as 23 percent if nothing is done by 2034.

Combined annual spending on health entitlements and Social Security is projected to grow by 89 percent over the next decade.

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

Defense. 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?

Non-defense discretionary programs. The next 9 percent of the annual budget is composed of domestic spending that falls outside of the scope of national defense and income security programs. It typically goes towards purposes such as employee salaries, construction projects, research, funding grant programs, and day-to-day operations of federal agencies.

Congress’s failure to follow the annual appropriations cycle has put much of this spending on auto-pilot, leading to waste, inefficiency and the growth of programs that fall outside of the federal government’s constitutional role.

Interest. Over the coming decade, U.S. debt held by the public is projected to balloon to over 96 percent of gross domestic product. 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.

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.

Some blame the recent tax cuts 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 cuts expire, tax revenue reverts to its pre-reform levels. Eventually, rising debt will leave lawmakers with limited options to avoid a financial crisis.

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 N. Michel is a policy analyst at The Heritage Foundation (heritage.org), where Justin Bogie is a senior policy analyst.

avatar

Posted by Tribune News Services

Leave a Reply