The following is a re-post of David E. Hultstrom’s Financial Foundations April 2024. You can reach Mr. Hultstrom at 770-517-8160.
It’s tax season once again and time for the annual summary of the state of the fisc. I have no political point, this is just data. The causes of the numbers below are thoroughly bipartisan.
I think this breakdown is useful because when numbers get into the billions or trillions, perspective is difficult. We simply can’t comprehend such large figures so below I will show federal taxes, spending, and debt broken down per family to make them more comprehensible. All the figures for income and spending given are for fiscal 2023. The debt figure is as of the end of 2023 and the household count is from the Census Bureau.
The percentage listed is the percentage of total federal spending, and figures are rounded to the nearest hundred dollars for simplicity. Differences between the itemized figures and the totals are due to rounding.
Federal Income:
- Personal Income Taxes: 37% or about $17,700 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: 26% or about $12,700 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 $4,200 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 (in economic terms) to try to reduce their taxes.
- Excise, Customs, Estate, Gift, and Miscellaneous Taxes: 4% or about $1,900 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: 25% or about $11,900 per family. We pay interest on this as do our children and their children until it is paid off (or we default). Financing a quarter of our spending is obviously not optimal.
- Grand Total: about $36,500 of tax income and another $11,900 borrowed per family at the federal level alone.
Federal Spending:
- Income Security & Health: 26% or $12,800 per family. This category includes Medicaid, food stamps, unemployment compensation, assisted housing and social services, and other welfare programs.
- Social Security: 21% or about $10,300 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: 13% or about $6,200 per family.
- Medicare: 13% or about $6,300 per family.
- Interest on the accumulated debt: 10% or about $5,000 per family. Fortunately, the federal government is considered an extremely good credit risk and current interest rates, while higher than a few years ago, are still fairly low.
- Other: 16% or about $7,800 per family.
- Grand total: about $48,500 spent on behalf of your family.
Federal Debt:
- Net Public Debt: about $26.9 trillion or about $205,000 per family.
- Gross Public Debt: about $34.0 trillion or about $259,000 per family. This includes the net public debt, but adds another $7.1 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.
I hope this view of some very large numbers in a more meaningful context has been helpful.