The debate has been heating up over the fiscal cliff--and not just in Congress.
Last week, we ran a personal opinion piece from a couple that felt they were being unfairly taxed.
It spawned a couple hundred comments, many of which questioned the wisdom of raising taxes when the government could cut wasteful spending instead.
What no one could agree on is what counts as wasteful spending. Is military spending worth it? How about programs that benefit the poor? Spending on infrastructure, like roads and bridges?
This got us to thinking: What does the government actually spend on, and how much? If we, hypothetically, could choose something to cut completely out of the federal budget, how much would the average family save?
So we dug into the numbers to help you understand just how federal spending affects you--and to report on what would happen if automatic cuts (called sequestration) go into effect if the fiscal cliff isn't resolved. Be prepared to be mystified, mollified and, sometimes, pretty miffed.
Let's talk about these taxes in terms of the hypothetical family, the Medians--you know, the family whose household income is $52,762, and who pays an 11.1% federal tax rate, which comes out to $5,856 per year.
How much did the Medians pay to fund each of these federal spending programs? We'll tell you.
Medicare, Medicaid, Children's Health Insurance Program (CHIP): 21%
The Median family spent $1,230 on Medicare, Medicaid and CHIP, including $779 on Medicare.
The largest chunk of federal spending went to these three health-related programs. But even more of your taxes, in the form of state funds, go to these programs--the federal government only matches what the states pay for Medicaid and CHIP.
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Both Republicans and Democrats would like to shrink Medicare spending, but the sticking point is how. The eligibility age (currently 65) could be raised--an option that 67% of Americans oppose, according to a recent poll. Obama has also expressed support for means-testing Medicare, which would require people with higher incomes to pay more. And Republicans would like to trim benefits.
Defense Spending: 20%
The Median family spent $1,171 last year on defense spending, including $258 on Iraq and Afganistan.
America spends more than 13 other high-spending countries combined on defense. But if no compromise is reached on the fiscal cliff, the Pentagon budget would automatically face $55 billion in cuts next year, and $500 billion over the next decade--a devastating outcome for many industries, towns and people who rely on defense spending.
Even if a deal is reached, most Democrats, Republicans and other policy makers agree that the defense budget will still face some cuts, especially with the wars in Iraq and Afghanistan ending. The base defense budget, which doesn't include these two wars, has doubled over the last decade--and that includes last year's defense cuts of $500 billion.
Social Security: 20%
The Median family spent $1,171 last year on Social Security.
We don't recommend that anyone plan to rely on Social Security for their retirement benefits--$1,171 a year in retirement savings is pretty pitiful. (Learn more about how much you should be saving in our Retiring in Style Bootcamp.)
Still, with Social Security taking up a full 20% of the federal budget, Republicans have proposed cutting its price tag by shrinking cost-of-living hikes. The White House and Democrats, on the other hand, want Social Security cuts taken off the table in the debate. It's not clear yet who will win in this showdown.
Safety Net: 13%
The Median family spent $761 last year on safety net programs.
According to the White House's budget breakdown for 2011, these programs include (in order of percentage spent) unemployment insurance; food and nutrition assistance; housing assistance; Earned Income Tax Credit, Making Work Pay credit, and Child Tax Credit; Supplemental Security Income; federal military and civilian employee retirement and disability, child care, foster care and adoption support; and Temporary Assistance for Needy Families (the official name for welfare), railroad retirement and additional income security.
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While most talk has centered around Social Security and Medicare, Republicans have made references to cutting social programs--many will be cut automatically if we fall off the fiscal cliff. One bill would reduce funding for food stamps. Extended unemployment benefits are currently set to expire four days after Christmas. In 2009, Obama expanded the EITC and Child Tax Credits, both of which are set to expire on December 31st.
Veteran and Federal Retirees Benefits: 7%
The Median family spent $409 on veterans and federal retirees benefits.
Surprisingly, Democrats and Republicans have worked together to pass several spending bills over the past two years that support veterans. But with the fiscal cliff looming, both sides have proposed cutting military retirement programs, which have grown faster than both inflation and private-sector benefits. Right now, military members receive immediate benefits after serving for 20 years. Republican representative Jeff Miller, who chairs the House Committee on Veterans Affairs, says that vets won't see their benefits cut.
Interest Payments on Debt: 6%
The Median family spent $351 last year paying interest on the federal debt.
Talk about wasteful! Since the U.S. spends more than it takes in from taxes, it must borrow from other countries to finance that spending. And just like someone who spends more than they take in, the country must pay interest on that debt. So 6% of your taxes go to interest payments.
Compare that to what the average family pays in credit card interest (at 20%) in a year: $754. Of course, unlike credit card interest, interest paid on the federal debt is out of your control. The only way to cut interest payments is to start paying down the national debt.
Transportation Infrastructure: 3%
The Median family spent $176 last year building and maintaining transportation infrastructure.
Obama has consistently lent his support to these programs. This summer, he released $470 million in unspent funds toward "shovel-ready" highway projects. And he recently announced that he was forging ahead to invest billions of dollars in a high-speed rail project.
Republicans, on the other hand, have consistently criticized investment in high-speed rail and other mass transit projects. They'd rather spend available money, largely raised from gas taxes, on updating aging roads and bridges. But the amount of money available from the gas tax for these projects has fallen and no longer covers infrastructure spending--it was never pegged to inflation, and hasn't been raised since 1993. Some members of Congress have indicated a higher gas tax might be on the table during negotiations.
The Median family spent $117 last year on education.
This includes programs for elementary, secondary and vocational education; financial aid for college; job training and employment services; and employment training for people with disabilities. States rely on federal grants to fund these programs, and if the fiscal cliff isn't resolved, education programs could face significant automatic cuts.
No wonder that education groups have been coming out en masse to lobby against fiscal cliff cuts, which could cripple research done by universities receiving federal and state funding. Neither party has explicitly mentioned education as a target for cuts.
Science, Medical Research: 2%
The Median family spent $117 last year on science and medical research.
Only 0.6% of federal spending went to NASA in 2011. At its height in 1966, NASA received 3.41% of federal spending. But if sequestration happens, that budget could be cut even further by 8% or $1.5 billion. (Of course, these funds don't just send the Rover to Mars--they also support research that ends up in consumers' homes, like microwave ovens.)
In May, the White House and Republican-led house got into a tiff over a bill meant to fund NASA, the National Science Foundation and the National Oceanic and Atmospheric Administration (NOAA). The White House threatened to veto the bill because of low NOAA funding. Meanwhile, scientists are upset with lower funding to the Mars exploration program proposed by Obama.The bill has yet to make it out of Congress and onto Obama's desk.
Non-Security International: 1%
The Median family spent $59 last year on international spending.
In a 2011 poll, Americans said that they thought foreign aid made up 25% of the national budget. Fact: It's part of the 1% of non-military government spending that goes abroad--along with embassy and foreign affairs programs. International aid is one of the discretionary programs that could face cuts if the fiscal cliff isn't resolved. Neither party has indicated its stance on non-security international spending.
What the Future Holds for Your Tax Dollars
It's clear that something is going to have to get cut--especially if you want to scratch out the hundreds you pay in taxes just to take care of the interest on the national debt. The trillion-dollar question: Will politicians carve out a thoughtful plan before December 31st? Or will everyone--scientists, educators, military personnel, to name a few--have to tighten their belts?
Were you surprised by any of these numbers? What would you want to see cut?
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