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Saturday April 25, 2015

Washington News

Washington Hotline

Where Do Your Taxes Go?

As taxpayers review their 2013 tax returns and payments, it is useful to consider the April report of the Congressional Budget Office (CBO). Each year the CBO reviews the source of taxes, the federal expenditures and the changes in the public debt of the federal government.

The IRS collected $2.8 trillion in revenue in 2013. Individual taxes were the largest amount and were $1.32 trillion. Social insurance was $950 billion. Medicare hospital insurance was about $300 billion and Social Security and other payments were the balance of the social insurance revenue.

Corporate taxes amounted to $274 billion. The miscellaneous category included excise taxes, earnings on the Federal Reserve's massive portfolio of government bonds, estate and gift taxes and other revenue. It equaled $237 billion.

The federal government spent $3.5 trillion. The mandatory spending for Social Security, Medicare, unemployment insurance and other benefits programs was the largest amount. It equaled $2 trillion in 2013. Discretionary spending includes government agencies and the Department of Defense. It was a total of $1.2 trillion. The interest on the national debt was $200 billion. This sum reflects the current very low interest rates.

Total spending equaled 20.8% of the gross domestic product (GDP) for 2013. This is slightly higher than the 40 year average. Revenue was 16.7% of the economy and that is below the 40 year average. This revenue is below average even with the higher tax rates on upper-income taxpayers under the American Taxpayer Relief Act.

Federal debt continued to increase. The deficit the past five years has been well above the 40 year average of 4.1% of GDP. However, the 2013 deficit was 3.9% of the economy.

Most of the $17 trillion in debt continues to be held by the public, although a substantial portion is now owed by the government to the Social Security fund. The public debt is now 72% of the economy. The 40 year average public debt is 39% of the economy. In 2002 debt was 38% of the economy, so it has grown rapidly to 72% of the economy.

The CBO warned that there were potential problems with the large federal debt. It stated, “Debt could have serious negative consequences, including restraining long-term economic growth, giving policy makers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.”

Published April 25, 2014

Previous Articles

Obama and Biden 2013 Tax Returns

Tax Freedom Day on April 21

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