Government and Finances

I get Dr. Andrew Jackson’s newsletter on a regular basis and the most recent one contained a few nice tidbits of info about the U.S. government and their spending habits.

These are a few of the nuggets from the newsletter that I thought were useful or interesting…

 

What do we mean by the words deficit and debt?

The deficit reveals whether the government has balanced the budget in any year.  Our federal government is addicted to deficits.  The federal government has spent more on programs and services than it has collected in taxes thirty-one out of the last thirty-five years.  But, don’t be fooled by any news headlines boasting about balance the budget.  Simply balancing the budget, although it helps not to add to the overall debt, will not solve the long-term financial problems of Social Security and Medicare.
The debt of the federal government reveals how much money the government has borrowed in total.

What are the federal government’s primary sources of revenue?

The federal government’s four primary sources of revenue are (1) Individual income taxes at 43.4% (2) Social insurance and retirement receipts at 34.8% (3) Corporation - big & small - income taxes at 14.7% (4) Excise - alcohol, tobacco, gas - taxes at 3.1% and (4) other at 4.1%.  The federal government receives approximately $2.4 trillion each year in revenue.  Since individual income taxes is the largest source of federal revenue, approximately 50%, it is important to know what “individuals” are really paying income taxes.  Well, approximately 52 million Americans pay little or no income taxes at all because of their income level.

What does the federal government spends its money on?

The federal government spends its money in six primary areas (2006): (1) Non-Defense Discretionary at 31.9% (2) Security Security at 20.7% (3) Defense at 19.7% (4) Medicare at 12.4% (5) Medicaid at 6.8% (6) Interest on Debt at 8.5%.  To clarify things even more, the federal government spends approximately 68% of its revenue on five things: Social Security, national defense, Medicare, Medicaid, and interest on the money borrowed.  

What percentage of federal spending goes to programs for the retirees/elderly?

It is estimated that about 46% of the domestic federal spending goes for programs for the elderly (Social Security, Medicare, and Medicaid).

Are all federal government programs equal in nature?

No.  Not all federal government programs are equal in nature, there is a big difference between discretionary and entitlement programs.  Some are “discretionary,” meaning the government can give and take away (education, defense, veteran’s programs, space program etc.), and others are “entitlements,” meaning that government has no choice but to pay (for example, Social Security, Medicare, and also, in a sense, the interest on the national debt since it is off limits).  Entitlements are on autopilot and Congress has no responsibility to review them as part of the budget process and make any spending decisions.

 

I am blown away by the amount that the U.S. government spends on interest for debts. If they receive $2.4 trillion dollars in revenue each year and pays 8.5% of that amount (actually more - how often does the government live within it’s means?), that is $204 billion dollars each year.

I know it must be challenging managing our country’s finances, but can you imagine the possible benefits of our government being debt-free? An extra $204 billion dollars each year!! I can think of a few things to spend it on - how about you?