Wasting Our Tax Dollars

🚀 What’s happening: The U.S. Government is approaching yet another shutdown if nothing is done by October 1st.

The short version this time is that back at the last stand off in May, Congress agreed to a deal that would extend the debt ceiling until 2025 and avert the shutdown (yay). Most people thought the problem was solved.

However, if you were a politician… you knew that Congress would still have to agree on passing an annual budget later that year for the deal to remain in place (the Government fiscal year end is September).

So once again, because they cannot agree… here we are.

Before going into what is likely to happen, let’s first review what our government’s annual budget roughly looks like in ways you can even explain to your kids.

As with any budget, it all starts with revenues and expenses (or spending).

The Government’s revenue comes from all of us. While the first income tax appeared during the Civil War, Americans did not actually start paying personal income tax regularly until the Revenue Act of 1913 was passed. Even then, the idea was that the income tax would be small and the burden mostly paid by the rich as a way to be able to lower tariffs (sound familiar?).

However, as with most things started by the government, once it starts… it gets difficult to stop. As the U.S. grew in size the government grew right along with it, needing our tax dollars to do so.

Today, Personal Income Tax makes up about $2 trillion in revenue for the government and accounts for about 50% of all revenue that they take in (the remaining pieces come mostly from other taxes like Social Security and Medical Taxes, corporate income taxes, and some other smaller categories).

But the Government still spends more than they have. While the Government currently pulls in about $4 Trillion in revenue each year right now, they are spending about $5 to $6 trillion a year (don’t get us started).

Spending more than they have consistently is a topic for another post, but in terms of breaking down their spending, it falls into in three main buckets: mandatory spending, discretionary spending and interest on debt.

Mandatory spending (think Social Security, Medicare, etc) accounts for about $3 to $4 trillion (or about 70% of the total), discretionary spending (think military, education, veteran’s benefits) is about $1 to 2 trillion (or about ~20-25%) and the remaining $1 trillion was interest on federal debt (or the remaining 5-10%).

For a breakdown on how this revenue vs. spending has trended throughout recent history see the chart below (for those who hate charts the key here is just that the pink line above the green line on the right hand side meaning they are spending more than they are taking in).

👪 Closer to home: Unfortunately we would anticipate that the government will actually shut down for at least a brief period. However, for the average family these things largely don’t matter so don’t let all the traditional media hysterics frighten you.

Now that you are armed with a bit more knowledge though on how the government actually makes revenue and spends every year, you can explain it all to your family and focus on doing what is best for you (which is our focus too!).

For ways to use this knowledge going forward, here are some tips:

  • Don’t give Uncle Sam all your dough. Tax law is a thriving profession for a reason, but you don’t have to be a multimillionaire to get a bit savvy around your taxes. For that, we created some quick tips on 10 things you can legally do to lower your taxes (we will always have your back).

  • Your kids don’t have to pay taxes. Did you know you can set your kids up to not pay taxes and be millionaires for less than a $1 a day? The new 529 plan to Roth IRA rollover law can help you accomplish this goal. Check out more here.

  • Make the US of A pay you. There is one benefit to high interest rates: those high rates apply to the government too when they borrow money. Use these high rates to your advantage by putting it in some safe spots and earning over 5%. Here are some suggestions.

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How Much Money Does Government Waste? Let’s Discuss

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Slow Real Wage Growth In The US