Where Your Tax Dollars Really Go…

Where Your Tax Dollars Really Go…

Would you spend $2.6 million to help Chinese prostitutes drink less alcohol?

Would you fork over $998,798 to ship two $0.19 washers from South Carolina to Texas?

And would you buy $100 million worth of refundable airline tickets … fail to use them … and then never ask for your money back?

The reality is that, as American taxpayers, we’ve already done all of these things.

We also gave Alaska Airlines $500,000 to decorate one its planes with the image of a salmon.

We kicked in $350,000 to sponsor a NASCAR driver…

And we blew $200,000 helping people in California get rid of tattoos they no longer wanted.

Should I move on to some of the bigger stuff?

Well, we spent $3 billion to put sand onto beaches only to watch it go right back into the ocean.

We paid out $60 billion in fraudulent health care claims in just one year.

And we squander about $25 billion annually to take care of unoccupied federal properties.

I could keep going, but you probably get the point.

Indeed, if you aren’t outraged by the way lawmakers have used some of our tax dollars, then you simply haven’t been paying attention.

This is why I don’t feel one bit bad encouraging people to slash their tax bills as much as the law allows.

From my perspective, the government will gladly spend every penny we send … but the amount they absolutely NEED to spend is far, far lower than they’d like to think.

Okay, you say. But ridiculous pet projects and egregious examples of waste aside, where does all the tax money actually go?

It’s a valid question, especially on Tax Day.

The U.S. Treasury takes federal spending and puts it into three different categories: Mandatory spending, discretionary spending, and interest being paid on debt.

Mandatory spending basically includes government programs like Social Security and Medicare.

These systems have eligibility rules, benefit formulas, and constant inflows and outflows of money.

They are also the largest part of annual government spending by a wide margin.

Just for some perspective…

Social Security takes up about one third of mandatory spending and accounts for one quarter of all government spending.

Remember, Social Security is funded by its own tax that exists ON TOP of regular federal income taxes. In fact, as I explained yesterday, as much as $15,921.60 of your money will go toward this program in 2018 alone… whether you realize it or not.

Medicare makes up another quarter of all mandatory spending and sucks up 15% of the typical federal budget. And through its own tax, it takes 2.9% of the income you personally earn in any given year (without an upper limit like Social Security has).

Other mandatory spending items include things like food stamps (now known as “SNAP”) and various transportation initiatives.

For fiscal 2016, the Congressional Budget Office says mandatory spending totaled $3.9 trillion, with roughly $1.5 trillion spent on just Social Security and Medicare. Medicaid added another $368 billion.

Contrast that with just $1.1 trillion collected via Social Security and Medicare taxes and you can see the big problem forming.

Meanwhile, discretionary spending encompasses all the stuff that lawmakers control through various appropriation acts. At $1.2 trillion during fiscal 2016, discretionary spending represents half the amount spent on mandatory items.

Defense is the biggest piece of the discretionary pie, consuming $584 billion in fiscal 2016. All the other nondefense items – which encompass everything from education to veterans’ benefits to housing assistance – amounted to $600 billion that same year.

You might also be wondering how personal income taxes stack up against sources of governmental revenue.

The short answer is that individual income taxes dwarf the amount of money that comes in from any other source.

In fiscal 2016, the U.S. government collected $1.5 trillion from individual taxpayers.

And as I mentioned, it also took in another $1.1 trillion in Social Security and Medicare taxes.

While a good portion of that money came from employers, we all realize it’s really money that workers aren’t pocketing.

In contrast, corporate income taxes totaled just $300 billion in fiscal 2016.

Put another way, individual taxpayers contributed five times as much money into U.S. coffers as corporations … or almost nine times as much if you lump in Social Security and Medicare money.

That’s pretty staggering, right?

The ratio should only widen going forward because of the tax law changes, too.

Estate taxes, excise taxes, gift taxes, and other miscellaneous fees and fines are worth another $300 billion a year to Uncle Sam.

That’s pretty much the picture in a nutshell.

So as millions of regular U.S. taxpayers rush to their local Post Offices today, the federal government is eagerly licking its chops to collect and spend every penny – and more! – that comes its way.

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, The Rich Life Roadmap

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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