Federal Budget

The U.S. Federal budget: Money goes in...more money comes out. It’s like a magic trick.

A lot of people frame this structure as a kind of political argument. But in the modern history of the U.S., it’s the same structure no matter who’s in power. Conservatives. Liberals. Idiots. Yes, they're always in power. The budget looks generally the same. They may change tax rates. They may spend money on different things. But overall, the shape of the budget has remained the same for as long as any of us have been alive. Except...it keeps getting bigger. Like...trillions bigger. Like a “4” followed by 12 zeros and a bunch of commas...big.

Most of the funds for the U.S. come from taxes on individual income, and from payroll taxes. There’s also a sizable chunk from corporate taxes. Specifically, we’ve got 47% from personal income taxes. Then another 9% of federal revenue comes from corporate taxes...basically, income taxes for companies. The next big chunk comes from payroll taxes. It makes up about a third of the federal government’s revenue. That’s the money for social security that you and your employer pay each time you get a paycheck.

Then you’ve got tariffs and all the little stuff that...doesn’t really add up to much. Members of Congress hash out what to spend. Once they make a deal, they need to get the president to sign off on it. And...that’s how the budget gets made. So...what does the Federal government spend our money on?

Three-fifths of the total budget goes to social programs...that’s stuff like social security, unemployment, Medicare, and Medicaid. After that, about a sixth of the budget goes to the military. Another 6% gets spent on debt service. That’s the interest expense on the bonds the U.S. government has issued to make up for its deficit spending.

Let’s look a little closer at the Federal government’s spending. There are two broad categories that the spending falls into. There’s Mandatory...stuff that’s been budgeted by previous legislation. It’s set in stone as part of the social programs...i.e. “entitlements." Again, we’ve got social security, unemployment, Medicare, Medicaid. The other big part of the Federal budget is called discretionary spending. This is stuff that lawmakers can negotiate on a year-to-year basis. The biggest part of the discretionary budget is the military; it also includes benefits for veterans.

There are a number of other, smaller expenses that fit into this part of the budget. There’s money for housing, for education, for international aid...pretty much anything else. But it’s important to remember that the mandatory spending and the military make up the biggest part of the total budget. Add in the service on the debt...and those programs combined equal 82% of the federal budget.

About those debts...each year, the government outspends its revenue, which is called “deficit spending.” To make up for it, the government has to borrow money. And it does this by issuing bonds. Every year, these additional debts get thrown onto the ever-growing debt pile, i.e. the “national debt.” which now tops $21 trillion, and is growing all the time. That said, debt service makes up just 6 percent of the total spending each year. The biggest chunk goes to everything in the mandatory spending category.

Less than a third goes toward discretionary spending. And remember that much of that is military and general government operations...salaries for government officials, sunglasses for FBI agents, fuel for Air Force One, cleaning the capital dome, and so on. And, of course, there’s the pork-barrel stuff. The $40 million pet projects that funnel money into particular districts. As a percentage of the total budget, these kinds of things are pretty much negligible. But they do add up in real-life terms.

Look at its this way:

The average dentist makes $173,860 a year. The federal income tax rate for a salary that size... is 32%. Which is $55,635 for each dentist.

So let’s see how many dentists it would take to pay for that $40 million pork barrel project. A little advanced calculus, and you would need the total income tax from about 719 dentists. Four out of five dentists agree…that’s a lot of dentists. Pretty much all the dentists in the state of Maine. Every one of them would have to get together and pool their federal income tax check to pay for that $40 million project. And they wouldn’t even be given Novocaine first…