tax policy

Tax Day 2015: Where Your Money Goes

It's a common misconception the federal government spends a significant portion of its budget on foreign aid. According to a recent Pew poll, a majority of Americans believe 28 percent of the federal budget is spent on foreign aid. This number is way off. It's so far off that most people don't believe me when I tell them the actual percentage is 1 percent of a $2.3 trillion budget.

So what the heck is our government doing with our money?
For tax day, the Committee for a Responsible Debt put together three useful charts outlining where our tax money goes, who pays the most and maps out the history of our deficit spending ways. 

Federal entitlement programs far and away take the cake in terms of percentage of federal spending. Social Security, Medicare, Medicaid, Unemployment Insurance and interest on the debt make up more than 55 percent of our annual spending. Once defense is added to the shopping list, 76 percent of the budget percent already been spent. Thus, all other domestic programs make up less than 24 percent of the government's budget. You'll see foreign aid at the bottom, barely making the list.

According to the report, we have a pretty progressive tax code. The top 20 percent of households pays almost 70 percent of the nation's taxes, while the bottom 20 percent pays .6 percent. The tax rates were made more progressive in recent years due to the fiscal cliff deal and the Affordable Care Act that raised taxes on the wealthy.

Finally, the chart above shows that we have made some progress since 2010 when our annual deficit was $1.5 trillion. Between the increase in taxes and budget sequestration, our annual deficit has dropped by $1 trillion (although our overall debt is still $18 trillion).
We certainly have more work to do. This leaves us with the question, how are we going to balance our books? Well one answer is obvious, we can't do it by simply eliminating foreign aid. 

Put Economic Growth on the Card, Please

A "supply-side liberal" economist says the fastest, cheapest way to revive the nation's economy is to give every adult a $2,000 federal credit card.American consumers are keeping their wallets in their pockets, which has prompted a novel suggestion from an economics professor to give everyone a $2,000 federally backed credit card.

Miles Kimball, a "supply-side liberal" from the University of Michigan, says a federal credit card for every U.S. taxpaying adult would stimulate consumer purchasing and, in turn, generate more demand — and jobs — in the manufacturing, wholesaling and retail sectors.

People could use the $2,000 now and not repay the loan, at a low interest rate, until the U.S. economy has fully recovered, Kimball explains. It would be similar to — only more potent and less expensive — than the Federal Reserve loaning money to banks to loan to average Joes.

Kimball says his idea is the fastest — and maybe only remaining — way to stimulate economic growth as Congress is high-centered in political gridlock and President Obama is on the campaign trail. He adds that a federal credit card would be more effective than tax rebates or credits — and less costly. The card only benefits people who use it and they eventually will pay back what they borrow, plus interest. Since the credit cards would be issued by the Federal Reserve, they won't deepen the federal deficit because the Fed operates on its own, separate balance sheet.