The deadline for filing income taxes – this year on April 18, 2017 – has come and gone. Let’s say you sent Uncle Sam $100. What do suppose he did with it?
Sometimes taxes can seem like nothing but a black hole into which we taxpayers pour our hard-earned money. But as we all know, taxes make society possible, paying for everything from the roads we drive on, to the schools our kids and grandkids attend, and to Social Security, Medicare and Medicaid for seniors – a group that includes many of us. Still, even though the idea of taxation is simple, the complexity can be overwhelming, and finding ways for the government to save money or spend tax dollars more efficiently is a never-ending tug of war. With that in mind we call your attention to this just-published article on the website of the Wall Street Journal. It’s called “How $100 of Your Taxes are Spent,” and it answers every taxpayer’s nagging question – “Where does my money go?”
This article is based on a report prepared by the non-partisan Committee for a Responsible Federal Budget. “Looking at the list of expenditures,” writes the Wall Street Journal, “it is clear why some say the U.S. is a giant insurance company with an army. Half of all spending goes for Social Security benefits and health programs such as Medicare and Medicaid, while another 20 percent is for defense and military benefits.” But let’s review our imaginary $100 tax budget in a bit more detail. For the purposes of this analysis the tax figure includes all federal revenue: individual income tax (nearly half of Uncle Sam’s income), payroll taxes (about one-third), corporate income tax (9 percent of the total) and other miscellaneous tax levies.
It surprised us a bit to see that the biggest single slice of our $100 tax pie, nearly $24 worth, went to expenses related to Social Security. The second biggest chunk, barely ahead of the cost of national defense, was for the Medicare insurance plan for those aged 65 and older, accounting for a bit more than $15. That means that these two programs alone account for nearly forty percent of expenditures from U.S. taxes. Add in the cost of Medicaid and you’ve just used up half the $100 tax revenue. Knowing how popular these programs are, it’s easier to see why finding a bipartisan solution to tax reform remains such an elusive goal: no one wants to touch these federal programs that combined eat up half our government’s income.
“In the last five years,” the Journal writes, “the shares of spending for Social Security, Medicare and Medicaid have each risen more than 15 percent. Social Security and Medicare increased largely due to the aging of the population, while the increase in Medicaid comes from aging, growth in health-care costs and expanded eligibility under the Affordable Care Act, also known as Obamacare.” But interestingly enough, military spending has seen a proportionate decline. “Over the same period, the share devoted to national defense dropped 22%, in part because Congress reduced war spending and capped other military spending in 2011.” That’s according to Center for a Responsible Federal Budget. In this most recent study defense spending is almost the same as the cost of Medicaid, about $15 of every $100 Uncle Sam receives each year.
Once you account for Social Security, Medicare, Medicaid and national defense, everything else is comparatively small. Veterans’ Affairs? Less than five dollars out of $100. Education? About two dollars. Transportation? About the same – two bucks. Housing assistance, food stamps, and Obamacare subsidies? They account for barely $4 combined out of $100 in tax revenue. Adjusting those tiny amounts is never going to solve the big issues of our federal budget. One of the biggest of those issues is Social Security: the Journal article says that the Social Security trust fund is presently underfunded by at least 20 percent per year and will be “exhausted” in just 17 years. While experts suggest today’s retirees have little to fear about Social Security’s possible future insolvency, the same can’t necessarily be said for today’s working adults whose retirement may be a few decades or more away.
Finally, the Journal reports, “President Trump’s ‘skinny’ budget, released in March, showed deep cuts to some agencies, but it only tackled discretionary spending, leaving out 70% of total spending. ‘The budget is far out of balance,’” says the Center for a Responsible Federal Budget. “‘Cuts will have to come from popular programs, because that’s where the money is being spent.’” It should make for some fascinating political debate in the months and years ahead.
What does the federal government’s tax dilemma tell us about preparing for retirement? Obviously one good place to start is to begin setting aside more money for your own retirement future. But as important as your retirement savings are, we at AgingOptions take a more well-rounded view of planning for retirement, because retirement is not just about finances. Every piece of the retirement puzzle – the financial plan you set in place, the legal framework you need, the housing decisions you make, the medical coverage your health demands, and the open, honest communication your loved ones require – has to fit together into a seamless whole. We call this approach a LifePlan, and with your LifePlan in place you’ll be far better equipped to meet every challenge that retirement can throw your way, including the challenge of rising costs.
So if this talk of taxes and their future impact on your lifestyle leaves you feeling uneasy, we urge you to come to one of our LifePlanning Seminars and learn more about the AgingOptions approach to this vital topic. If you’ll invest just a few hours of your time hearing about the power of retirement planning done the right way, we’re confident you’ll gain not only invaluable knowledge but true peace of mind. Interested in taking the next step? Simply attend a free AgingOptions LifePlanning Seminar – no risk or obligation whatsoever. Click here for dates, times, locations and online registration, or contact us during the week and we’ll gladly assist you
(originally reported at https://www.wsj.com)