U.S. Financial Report

April 15, Tax Day looms just ahead. Here we provide here a family oriented view of the Federal Budget.  It can be difficult to relate to Billions and Trillions, so we break spending, taxes and borrowing down per family.

Federal Income:

  • Personal Income Taxes: 40% or about $11,300 per family.  Obviously most of us pay this, but approximately half of U.S. taxpayers owe no income taxes due to various exemptions, deductions, and credits.  This means the other half (on average) are paying double.
  • Social Security, Medicare, etc. Taxes: 29% or about $8,300 per family.  Most retirement taxes are ostensibly paid half by the worker and half by the company, but this is a fiction.  The company isn’t concerned with what workers take home; their concern is how much it costs to employ them. Thus the “company’s” share of the taxes would otherwise be available to pay to the workers. Further, there is no “lock box” or separate accounts or investments waiting for workers when they retire.  All of these taxes are spent either on current retirees or other government programs.
  • Corporate Income Taxes: 9% or about $2,600 per family.  While economists disagree on the exact breakdown, there is no question we all pay this in some combination of three ways, 1) as a worker through lower wages, 2) as a consumer through higher prices, or 3) as an investor through lower returns.  There isn’t any place else for the funds to come from. Also, as with the next item, there are large inefficiencies as companies lobby furiously and structure themselves suboptimally to try to reduce their taxes.
  • Excise, Customs, Estate, Gift, and Miscellaneous Taxes: 8% or about $2,300 per family. The estate and gift taxes are particularly inefficient because they cause large (relative to the revenue) non-productive expenditures (from people trying to avoid them) and/or inefficiencies (from economic dislocations).
  • Borrowing: 14% or about $3,900 per family.  We pay interest on this as do our children and their children until it is paid off (or we default).  Financing over a seventh of our spending is obviously not optimal.
  • Grand Total: about $24,500 of tax income and another $3,900 borrowed per family at the federal level alone.

Federal Spending:

  • Income Security & Health: 26% or $7,500 per family.  This category includes Medicaid, food stamps, unemployment compensation, assisted housing and social services, and other welfare programs.
  • Social Security: 24% or about $6,900 per family.  Our current seniors had their social security taxes spent to fund the previous generation’s retirement, so this is funded out of current taxes.
  • National Defense: 17% or about $4,900 per family.
  • Medicare: 15% or about $4,200 per family.
  • Interest on the accumulated debt: 7% or about $1,900 per family.  Fortunately, the federal government is considered an extremely good credit risk and current interest rates are extremely low.  This will probably not be true for an extended period of time.
  • Other: 11% or about $2,800 per family.
  • Grand total: about $28,500 spent on behalf of your family.

Federal Debt:

  • Net Public Debt: about $13.0 trillion or about $106,000 per family.
  • Gross Public Debt: about $18.1 trillion or $147,000 per family. This includes the net public debt, but adds another $5.1 trillion that the government owes to itself.  For example, current Social Security “surpluses” are invested in Treasuries, which in reality means it is lent to the rest of the government to spend now.

From Financial Architects