We are closing in on tax day. Be sure to send your money to the government so they can…wait where do our taxes go in America? Follow the journey of our hard-earned dollars and see how they are spent.
In this article:
- Where do our taxes go?
- What is the national debt?
- What is a reconciliation bill?
- Who manages the general fund?
Where Do Our Taxes Go In America?
The federal government generates revenue from individual, corporate, and social insurance taxes. This revenue is paid mostly from the people working and living in the United States. Once tax dollars are collected they go into the national general fund. The general fund is divided up by the government and parsed into services for the people. Our federal tax dollars are generally used to pay for 2 types of expenses: Mandatory and Discretionary.
Mandatory spending occurs each year and takes place without annual legislation. This money goes to entitlement programs that were previously enacted into law, under statutes for long durations of time. Some programs are on indefinite timelines, like Medicare and Social Security.
Mandatory spending examples:
- Medicare and Medicaid
- Social Security
- Unemployment Compensation
- Student Loans
- Retirement for Federal Employees
- National Debt Interest Payments
Americans are required to pay FICA taxes to fund Medicare and Social Security programs. The total tax rate is 15.3%, breaking down to 12.4% for Social Security, and 2.9% for Medicare. Typically when you are employed by someone, that employer would pay half (7.65%). The other half (7.65%) is withheld from your wages and remitted to the government by your employer. On earnings, up to $200,000, as a single filer and $250,000 as a joint filer, individuals owe a .9% Additional Medicare Tax.
Employers are required to pay FUTA taxes to fund the Unemployment program. A tax rate of 6% is imposed on the first $7,000 in earnings paid to each employee during the year.
What Is The National Debt?
Yup, we have debt, and our taxes go to that too. National debt in the United States is a measurement of how much the federal government owes its creditors. The national debt includes public debt, federal trust funds, and numerous intragovernmental accounts. Surprisingly the U.S. owes the majority of debt to itself ex: Social Security loaning money to another program.
On January 31, 2022, the national debt surpassed $30 trillion for the first time in history. Increased taxation, reduced spending, debt restructuring, debt monetization, or default are how the national debt can be lowered.
Discretionary spending is voted on annually to fund programs via appropriation bills. This type of spending is subject to political and budgetary ideologies, so it is examined by committees in the House and Senate. Once the appropriations process is complete bills are enacted by Congress and approved by the President.
Discretionary spending examples:
- COVID Response (Stimulus and Child Tax Credit Payments)
- National Defense
- Commerce and Housing
- Education, Employment, and Social Services
- Veteran Services
- And More!
*List is organized from the highest percentage of financing to low.
Congress sets new funding levels for the next fiscal calendar year, starting October 1st and ending Sept 30th. When state officials cannot agree on discretionary budgets, and fail to pass bills timely, the government is shut down. During a shutdown federal employees do NOT get paid, and programs are halted due to workers no-showing.
What Is A Reconciliation In Government Spending?
Some annual budgets get passed with resolutions for reconciliation. These dictate dollar targets for each committee to raise or lower expenses and increase revenue. If the annual budget goes through reconciliation, then the government can quickly vote to reduce, reallocate or increase discretionary spending. The reconciliation vote requires a simple majority and is used by both parties to pass prioritized measures.
Who Controls The U.S. General Fund?
In U.S. governmental accounting the general fund details the people’s assets…and liabilities. The U.S. Department of Treasury (USDT) is in charge of general fund management. This is an executive branch department, spearheaded by a cabinet member, the Secretary of the Treasury.
The USDT is responsible for collecting all federal taxes with help from the Internal Revenue Service (IRS). This department also manages debt repayment instruments, banks, government groups, and doles out fiscal policy advice to the other branches of government. Thus, we see the President’s and Treasurer’s signatures on our money and refund checks.
Role Of The Bureau Of Fiscal Service?
The Bureau of Fiscal Service acts as our trusted accountants. They provide financial services on behalf of the public. In short, they collect income, collect overdue debts, and disburse funds to millions of Americans, ensuring that benefits are received on schedule.
Their accounting duties are:
- Authority: tracks of appropriation authority of the general fund granted by Congress.
- Borrowing: tracks the Treasury’s loans to other federal agencies like Medicare or Unemployment.
- Cash: receives money from the general populace like taxes, fees, bonds, etc.
- Debt: grants money to the public and government agencies
So the next time you are having a drink with a government accountant, there’s no sense in complaining to them about wasted tax dollars. They have little say in big picture budget matters, instead thank them for their monetary service.
General Fund Spending
Now you know where our tax dollars go—Most circles right round to us. If you think our national spending habits need to be rectified, give your local representative or senator a call. They’d love your input on how our tax dollars should be spent.