In 2017, the United States government spent a total of $4 trillion.[1] As a taxpayer, aren’t you interested in that enormous figure? Where did it all go? What benefits came from it? Although taxes seem inconvenient, they are necessary for our country to provide basic social benefits and fund essential programs. This article will explore the following questions regarding taxes and their importance: How are taxes spent? What are tax benefits? How is the tax budget formed?
How are Taxes Spent?
The Federal Government divides tax revenue into these six major categories: social security, healthcare, defense and security, safety net programs, interest of debt, and miscellaneous.[2] The chart to the right shows each category by percentage for the 2017 fiscal year.
Half of the budget was spent on social
security and healthcare alone.. In 2017, social security alone distributed an
average of $1,404 per month to approximately 63.4 million people in retirement
aid or other benefits.[3] Government
healthcare– which consists of Medicare, Medicaid, CHIP, and marketplace
subsidies– assists lower-income people in obtaining affordable healthcare. In
2017, the healthcare budget provided $1 trillion of total aid to over 120
million citizens.
Still, the other categories are not to be forgotten–each category creates unique benefits for the people of the United States. More details can be viewed at the website Center on Budget and Policy Priorities‘ website.
What are the Tax Benefits?
How, then, do taxes benefit all citizens? Each budget category also directs efforts towards daily needs. Take a quick glance around our cities, counties and states—you’ll surely see evidence of the tax system at work. From physical projects to public services, taxes offer a variety of benefits to the community.
The miscellaneous budget is perhaps where the broadest interests lie. This category includes programs that protect the environment, invest in education, conduct research, construct and maintain basic infrastructure, and much more.
Additionally, taxes contribute to defending our freedom and assisting families and schools. Our country’s defense and security budget spent over $600 billion in 2017. The safety net programs spent just under $400 billion in the same year. The assistance from safety net programs includes SNAP, school meals, housing assistance, childcare assistance, and other vital programs. [4]
How is the Tax Budget System Formed?
Debates over tax rates and budget amounts occur every year. The tax system and federal budget are created and formed by policy makers who have conflicting views. Taxpayers ultimately hold the power to elect the government officials who determine the outcome of these policies. It’s important that taxpayers know how the tax and budget systems work so that they can best determine what needs to be changed and vote accordingly.
Each year, the federal budget goes through three main steps: The President’s Budget Request, The Congressional Budget Resolution, and Enacting Budget Legislation.[5]
THE PRESIDENT’S BUDGET REQUEST
The President and his staff review and approve the budget forecast and its associated financing. The chart to the right shows the outlays (expenses), revenues, and borrowing for the 2019 fiscal year, according to Policy Basics.
Comparison of the outlays and revenues determine how much tax revenue and borrowing are necessary. More on the determination of tax revenue can be viewed on the Policy Basics Website.[6] After an initial budget draft from the President, recommendations for policy change are then presented to the House and Senate.[7]
THE CONGRESSIONAL BUDGET RESOLUTION
House and Senate Budget Committees then hold a hearing to question the budget request of the administration officials and develop a “budget resolution.” This budget resolution must be approved by a majority vote and is not returned to the President.
ENACTING BUDGET LEGISLATION
After review and development by the House and Senate, the “budget resolution” is then passed on to Congress. Congress determines the need for adapting tax legislation as well as discretionary and mandatory spending.
What is to Be Done?
So, why should taxpayers care? What impact does all of this mean have on them? If taxpayers understand the three questions discussed above, then they should be more willing to contribute to their community or change the way the system affects their lives.
Complaints about paying taxes are commonplace. Understandably, it’s difficult to part with hard-earned money. For many, taxes seem to be purely a loss with no upside. However, taxes are so much more than just a personal expense or a line item on an income statement. Taxes are the backbone to our country’s development and stability.
Free riding is one big issue that the tax system can
inadvertently produce– it creates many disadvantages for society. If only one
person decides to cheat the system and avoid paying taxes, the federal budget
may not be meaningfully affected. However, what would happen if millions of
citizens started to cheat the system as well? The revenues that the government
uses would decrease, causing a drastic increase of the federal deficit. A
larger deficit means that more cash has to be borrowed. Participation in the
paying of taxes is necessary to both reduce the national deficit and to
continue to provide meaningful support for the country.
Taxes play a critical role in the success of our nation.
It is crucial that all taxpayers should contribute. Those who are unhappy can
look for ways to be actively engaged in making meaningful reform to the tax
system. However, there is no way around the fact that taxes are an essential
element of our government.
[1] Policy Basics: Where Do Our Federal Tax Dollars Go?” 2019. Center on Budget and Policy Priorities. Center on Budget and Policy Priorities. January 29, 2019. https://www.cbpp.org/research/federal-budget/policy-basics-where-do-our-federal-tax-dollars-go.
[2] Policy Basics: Where Do Our Federal Tax Dollars Go?”.
[3] Policy Basics: Where Do Our Federal Tax Dollars Go?”
[4] Policy Basics: Where Do Our Federal Tax Dollars Go?”.
[5] “Policy Basics: Introduction to the Federal Budget Process” 2019. Center on Budget and Policy. Priorities. Center on Budget and Policy Priorities. July 8, 2019. https://www.cbpp.org/research/policy-basics-introduction-to-the-federal- budget-process.
[6] “Policy Basics: Where Do Federal Tax Revenues Come From?” 2019. Center on Budget and Policy Priorities. Center on Budget and Policy Priorities. June 20, 2019. https://www.cbpp.org/research/federal-tax/policy-basics-where-do- federal-tax-revenues-come-from.
[7] “Policy Basics: Introduction to the Federal Budget Process”