Here's Some Perspective on How Your Tax Dollars Will Be Spent

If you step back — way back — and try to take in the entirety of the US federal government, you'll find that it resembles a staggeringly large and heavily armed community support program, a sort of super-sized Salvation Army (if the Salvation Army actually had an army). You'll also get a terrible headache.

This year, the government is expected to spend about $3.8 trillion. That's a number that defies sense, reason, or scale, but let's try. According to my (very rough) calculations, 3.8 trillion grains of sand works out to something like 100 million pounds of sand. And so if the US government tried to pay its expenses for one year with sand at an exchange rate of one grain to one dollar, it would take a pile of sand so big that… well, I don't know. But it would be one big-ass pile of sand.

And before anyone corrects my sand math, let me freely acknowledge it's a calculation with such a large margin of error that the answer is almost meaningless — which isn't a bad analogy for all the debates that occur over the federal budget. There are massive amounts of wiggle room in the way line items are calculated and counted. The result is that budget numbers can be used in sincere and legitimate ways, but they can also be used for shenanigans, sleight-of-hand, and other chicanery. Because of the enormity and complexity of the numbers, it can be hard to know which is which.

So I will try to limit the numbers I use to ones that aren't really up for debate.

On the expenditure side, the US is looking at a total of about $3.8 trillion in outlays. That is usually broken down into two parts: non-discretionary and discretionary spending. The bigger chunk of the pie is non-discretionary — money that is paid out automatically. This amounts to about $2.4 trillion, or about two-thirds of federal spending, and covers Social Security payments, Medicare, Medicaid, interest on the debt, and whatnot. The only way Congress can change this kind of spending is by making a new law, which is a pain in the ass, and so this kind of spending is rarely significantly changed.

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Discretionary spending is what Congress generally spends all its time raising a stink about, since discretionary spending changes pretty frequently. (It's also far less politically radioactive to suggest changing it.) This money pays for most of what people think of as the government: the military, education, NASA, the FBI, the National Park Service, and the like. This year, discretionary spending is about $1.4 trillion.

Of that, about half — $589 billion — goes to the Department of Defense. One of the more common refrains about government spending is that we should slash the defense budget and spend that money on other things. It is, after all, the largest single chunk of the discretionary budget, even if it only amounts to one-sixth of total federal spending.

Here's something that isn't often done during that debate: breaking down the defense budget into types of spending. Do that, and you discover that of the DOD's $589 billion budget, about one-third ($195 billion) is spent on "personnel compensation and benefits."

This is a wonderful bit of data for a few reasons. First, any organization with a payroll budget of $195 billion — that's roughly the GDP of the Czech Republic — is what accountants refer to as fucking immense. Second, the US accounts for something like 40 percent of the world's defense spending, but the DOD payroll and benefits budget alone is — depending on how you count and who you ask — more than China's entire defense budget. And third, DOD bigwigs are painfully aware that they're spending a third of their money on payroll and benefits, which is why their interest in automation and cool robots goes far beyond flying a few drones.

Though people often talk about the budget in terms of discretionary and non-discretionary spending, it's not necessarily the most helpful way to think of it — especially when debating how the government should spend its money relative to defense and social programs. A more interesting approach is to look at the budget by "function and superfunction," which presents the budget by objective instead of by type of expense.

When you take all the discretionary and non-discretionary spending and bundle it together, the total defense spend grows to $598 billion because it adds bits of Homeland Security, the State Department, and other things. Do that for social spending — health, education, Social Security, Medicare, Medicaid, etc. — and the total comes to about $2.7 trillion. Or, to better compare it with defense spending, $2,734 billion.

We know how the US defense budget compares to the rest of the world, but what about the country's social spending? The federal outlay on social programs is about 15 percent, or about one-sixth, of total US GDP. If you add in state and local spending, you get the entire sum of net public spending on social programs in America, and the total rises to roughly 19 percent of GDP.

That barely puts the US in the middle of the pack when it comes to how much public money is spent on social programs in countries around the world. Toss in all the private spending on social programs, however, and America's new total is close to 30 percent of GDP. When private spending is taken into account, the US rockets up to second place, behind only France. The takeaway is that spending on social programs in the US actually comes from pretty diverse sources.

Let's talk about where the government gets all of its money every year. About $3.2 trillion is collected in taxes, and the other $583 billion is borrowed — about the amount of money the US spends on defense. (One could say the US hits up other countries for money in order to pay its defense budget, which is kind of like taking a loan out on your car to buy a bunch of guns, which makes for a really interesting encounter when the repo man tries to repossess your car.)

About $1.5 trillion of those taxes comes from individual Americans, courtesy of the IRS. Corporations pay another $342 billion. Then there are payroll taxes, which account for just over $1 trillion. Beyond that, there's a grab bag of excise and customs taxes, dribs and drabs, and various odds and ends coming to $292 billion.

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Payroll taxes are split almost in two — the company and the individual each pay about half. Although, according to Chuck Marr, a researcher at the Center on Budget and Policy Priorities, economists argue that the whole of the economic burden from payroll taxes rest on the individual, since corporations basically pay their share of payroll tax instead of paying employees the money. Given that, the total coming out the pockets of John Q. Public amounts to about $2.5 trillion. That comes pretty close to the total of all non-discretionary spending plus interest on the debt: $2.376 trillion.

So it's fair to say that in America, individuals are coughing up a lot more in taxes than corporations, but that's not the whole story. For starters, corporate tax rates in the US are actually some of the highest in the world, at just under 40 percent. Of course, that's not the actual rate corporations pay. Any self-respecting giant multinational corporation — or even a not-so-giant corporation — is going to hire a slew of very good tax lawyers to find each and every deduction and loophole.

But big businesses aren't the only ones avoiding taxes. Approximately 150 million Americans pay taxes, but about half of all households actually pay no taxes at all thanks to deductions, credits, and exemptions.

One notion that's perpetually popular is the idea that rich folks should be made to cough up more. While the US tax system is progressive — meaning that rich people hand over a larger percentage of their incomes in taxes than others — it's only just barely progressive, at least according to Citizens for Tax Justice. Some numbers to illustrate that fact: The richest 1 percent of people in the US account for 21.6 percent of all income, but account for 23.7 percent of all tax revenue. The country's poorest 20 percent have 3.3 percent of all income, but pay 2.1 percent of all taxes. Added together, the top 5 percent of income earners pitch in about 40 percent of tax revenue. Put another way, the individual tax receipts of the country's wealthiest 5 percent pay for the entire defense budget.

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So what are the takeaways here? First and foremost, that the US government is too big for anyone to truly get his or her head around. Uncle Sam takes in and spends enough money every year to give every person on the planet about $500. Imagine that after giving everyone on the planet $500, you told those 7 billion or so people that they had to then pool their resources and work together toward a common objective — or, really, toward hundreds or thousands of objectives. It would be a rollicking mess.

The surprise is not that the US government is a hideous jumble of inertia, confusion, and dysfunction. The surprise is that it works as well as it does.

The other big take away is that most of the money the government collects in the form of taxes comes out of the pockets of individuals, and is then distributed back to and spent on individuals in the form of Medicare, Medicaid, and Social Security. All the odds and ends about how much this or that program costs, or whether there's a loophole exempting corporate cocaine-party yachts from sales tax, makes a relatively minuscule difference in the big picture. They're just a lot more fun to debate.

Follow Ryan Faith on Twitter: @Operation_Ryan

Photo via Flickr