Updating our tax code’s “operating system”: Tax Reform 2.0
- The House Ways and Means Committee has passed ‘Tax Reform 2.0,’ three bills modifying the tax...
The economy has seen its share of ups and downs over the past 20 years, but one thing has remained constant — the federal government is increasingly spending more money. This trend worries policy analysts concerned about too much government debt and deficit spending.
In total, the spending amounts to about $35,000 per household in 2019. Some of those funds went directly to households in the form of Social Security, Medicare, and other benefits, while another portion was used to pay interest on the $10 trillion national debt.
Here’s a closer look at where that money is going and what might happen if it continues on the same trajectory in the future.
According to The Balance, about 60 percent of the $4.7 trillion federal budget goes toward what’s considered “mandatory spending” on Social Security, Medicare, and Medicaid.
Social security payments range from $716 to $1,266 per month based on a person’s age when they choose to start receiving them. Medicare and Medicaid each cost about $600 billion per year to operate.
These services are widely considered to be part of the social safety net Americans expect to receive, but their long-term financial future is uncertain. As the Baby Boomer generation gets older, the price tag for these programs is going to get higher, which requires more money from the federal government.
These programs, however, are popular across the political spectrum, which makes changing them difficult for any member of Congress who wants to win re-election. Expect a series of short-term fixes to keep these programs functioning until they reach a crisis point at a to-be-determined time in the future.
The next largest allocation of the federal budget is on what’s described as “discretionary spending.” This category adds up to about $1.4 trillion and includes all five branches of the military and all cabinet-level departments — defense, education, veterans affairs, etc.
This part of the budget tends to receive more of a spotlight from the media and members of Congress who disagree on how funds should be allocated. Conservatives tend to favor more money on military and defense spending, while liberals favor allocating more funds to education, health services, and other non-military agencies.
The priorities of how to spend these funds also change from administration to administration and are impacted by wars and other events happening throughout the country and around the world.
Returning to the notion of government spending per household, each person or family sees the benefits of this spending less directly than they do from mandatory spending on Social Security, Medicare, and Medicaid.
For example, the country as a whole benefits from a well-funded military and well-run public schools, but the individual benefits in Americans’ everyday lives are less tangible.
The final portion of the federal budget is paying interest on the national debt, which accounts for about 10 percent or $479 billion. While it’s currently the smallest portion of the budget, it’s also the fastest-growing segment thanks to compound interest.
By the end of the decade, the debt payments are estimated to reach $823 billion. If the government does not keep up with these payments, it will go into default, which could have disastrous consequences for the economy.
Again, the political parties differ here about how to address this issue. Republicans tend to favor less spending on government programs in an effort to move money from discretionary spending to debt payments. Democrats, on the other hand, favor increasing taxes on the wealthy to bring in additional revenue to pay down the debt.
Like a lot of things in politics, the solution will likely be somewhere in the middle, requiring compromise from both sides. Expect more short-term changes that keep the proverbial lights on without rocking the boat too much politically.
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