What Does the Federal Budget Do With Your Money
President Trump released a new draft budget yesterday , which means your federal taxes could go in different directions. Let’s take a look at what happens to the money we pay to the IRS and how much each of us spends personally.
Where does the government get the money
About half of the federal government’s money comes from income tax . You also probably pay various types of state and local taxes, but we are not calculating them today. Another 33 percent comes from payroll taxes – more on that later. The rest comes from corporate income tax (11 percent) and excise taxes, property taxes and various other taxes (9 percent). Most (99.5%) of us will never pay inheritance tax . You pay some excise taxes , but they are included in the cost of your airfare, gasoline, cigarettes, alcohol, and so on.
How much do I personally pay?
A portion of your every paycheck goes towards payroll taxes. Only half of it comes from your salary; the other half is paid by your employer. It’s kind of “your” money, because if this tax didn’t exist, your employer could add that money to your wages. (If you are self-employed, you still pay everything yourself.) When you add up social security, health care, and unemployment insurance, payroll taxes are 15.3 percent of your paycheck, or slightly less if you earn more than 118,500 dollars.
This is where your payroll taxes go. If you make $ 50,000, which is roughly the average household income in the United States, you pay:
- $ 6,200 to the Social Security Fund , which provides retirement and disability benefits.
- $ 1,450 for Medicare , which provides health insurance for people over 65.
- $ 420 for unemployment insurance .
Next, let’s take a look at your income tax. The exact amount you pay depends on your income and all the other details that your tax forms ask about. If you have last year’s tax return on hand, just look: this is what you pay. Or, to select an example for the average household, let’s take a look at this chart and average the tax contributions of people with incomes between $ 25,000 and $ 50,000 and between $ 50,000 and $ 100,000. That’s $ 4,061 in income tax for the typical taxpayer Jane and her family.
What do I get for my money?
To see where your money is going, let’s take a look at the federal budget and cut it down to your contribution. This year’s budget is $ 3.65 trillion . We’ve already accounted for our share of social security, medical care and unemployment insurance, which cost the government $ 1.66 trillion in total . So we’re looking at about another $ 2 trillion that the federal government pays for. Jane’s taxpayer share is $ 4061, remember, so every $ 1 billion in government spending is $ 2.03 out of her pocket .
This embellishes some things, such as the excise taxes that go directly to certain programs, but these numbers should give you a rough idea of what it means to pay your share. Jane pays:
- $ 706 in Medicaid ( $ 348 billion ). Trump’s proposed budget calls for massive Medicaid cuts , but it’s hard to pin down the dollar amount. In ten years, his budget could be cut in half.
- $ 144 for SNAP , formerly known as food stamps ( $ 70.9 billion ). Over the next decade, the program budget could be cut by a quarter.
The costs we’ve discussed so far are “must”, which means the government has to pay for it in order to comply with its own rules. For example, when someone gets eligible for Social Security payments, the law says they start getting paid, so that’s about it. Mandatory expenses also include earned income tax credits and child tax credits, as well as veteran benefits and federal employee pensions. The Congressional Budget Office has a gorgeous chart showing what is included and how it changed from 2015 to 2016.
That remains to be spent as discretionary, which means that amounts can more easily change from year to year at the discretion of Congress. Here’s what’s included:
- $ 1,185 for defense ( $ 584 billion in 2016). Trump wants to increase spending here , which will cost you an additional $ 107.
- $ 85 in foreign aid that includes health, infrastructure and refugee programs ( $ 42 billion ). There is disagreement about what should be included in “foreign aid”, so you will see different numbers in different places. Cutting a third of dollars in foreign aid will save you $ 14.
- $ 65 for the National Institutes of Health , including $ 1.23 for Cancer Moon Shot ( $ 32 billion in 2016). Trump wants to cut that amount to $ 26 billion , saving you $ 12.
- $ 38 for NASA ( $ 19 billion ). It’s about the same in Trump’s budget.
- $ 16 for the Environmental Protection Agency ( $ 8 billion ). Trump wants to cut the EPA budget to $ 5.7 billion, which will save you almost exactly $ 5.
- 30 cents for the National Endowment for the Arts ( $ 148 million ). Trump doesn’t need your 30 cents .
To determine your share of the programs we did not include on this list, simply take the cost in billions (with the letter B) and multiply by $ 2.03. Think of small programs as 20 cents for every $ 100 million. You will find that many programs are not as expensive as you thought: the army is huge, but you pay much more for social security than for defense. And the National Endowment for the Arts, constant political football, is literally a pocket change for most of us. Oh, and don’t forget $ 574 in interest payments on government debt ( $ 283 billion ).