President Trump released a new draft budget yesterday—which means that your federal tax dollars may be going to different places. Let’s take a look at what happens to the money we pay the IRS, and how much we each personally spend.
Where the Government Gets Its Money
About half of the federal government’s money comes from income taxes. You also probably pay state and local taxes of various kinds, but we’re not calculating those today. Another 33 percent comes from payroll taxes—more about those in a minute. The rest comes from corporate income tax (11 percent) and excise, estate, and miscellaneous other taxes (9 percent). Most (99.5 percent) of us will never pay estate tax. You do pay some excise taxes, but they are worked into the price of your airline tickets, gas, cigarettes, alcohol, and so on.
How Much Do I, Personally, Pay?
A portion of each of your paychecks go to payroll taxes. Only about half of these come out of your salary; your employer pays the other half. It’s sort of “your” money, because if this tax didn’t exist, your employer would be able to add that money to your wages. (If you’re self employed, you pay it all yourself anyway.) When you add up social security, medicare, and unemployment insurance, payroll taxes total 15.3 percent of your salary, or a little less than that if you make above $118,500.
Here’s where your payroll taxes go. If you make $50,000, roughly the median household income in the US, you pay:
- $6,200 to Social Security, which provides retirement and disability benefits.
- $1,450 to Medicare, which provides health insurance for people over 65.
- $420 to unemployment insurance.
Next, let’s consider your income tax. The exact amount you pay depends on your income and on all those other details that your tax forms ask about. If you have last year’s tax return handy, just take a look: that’s what you pay. Or to pick an example for the average household, let’s take a look at this chart, and average the tax contributions of people in the $25,000-$50,000 income range with those from the $50,000 to $100,000 range. That’s $4,061 in income tax for a typical Jane Taxpayer and her family.
What Do I Get for My Money?
To see where your money goes, let’s look at the federal budget and scale it down to the size of your contribution. This year’s budget is $3.65 trillion dollars. We already accounted for our share of Social Security, Medicare, and unemployment insurance, which cost the government $1.66 trillion in total. So we’re looking at about $2 trillion of other things the federal government pays for. Jane Taxpayer’s share of that is $4,061, remember, so every billion dollars of government spending works out to $2.03 out of her pocket.
This glosses over a few things, like excise taxes that go directly to certain programs, but these numbers should give you a ballpark idea of what it means to pay your share. Jane pays:
- $706 to Medicaid ($348 billion). Trump’s proposed budget involves massive cuts to Medicaid, but it’s hard to pin down the dollar amount. In ten years, its budget could be halved.
- $144 to SNAP, the program formerly known as food stamps ($70.9 billion). Over the next decade, a quarter of the program’s budget could be cut.
The spending we’ve discussed so far is “mandatory,” meaning the government has to pay it to fulfill its own rules. When somebody becomes eligible for social security payments, for example, the law says they start getting the money, so there it goes. Mandatory spending also includes earned income tax credits and child tax credits, plus veterans’ benefits and federal employees’ retirement. The Congressional Budget Office has a snazzy chart here showing what’s included and how it changed from 2015 to 2016.
What’s left is discretionary spending, meaning the amounts can more easily change from year to year, at Congress’s discretion. Here’s some of what is included:
To figure out your share of programs we didn’t include on this list, just take their cost in billions (with a B) and multiply by $2.03. Think of smaller programs as 20 cents for every $100 million. You’ll find that a lot of programs don’t cost as much as you thought: the military is huge, but you pay way more to social security than to defense. And the National Endowment for the Arts, a constant political football, is literally pocket change for most of us. Oh, and don’t forget $574 to pay down interest on the national debt ($283 billion).
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