Taxman

The first Beatles’ song I learned to play on guitar was “Taxman”.  It has a driving bass riff and McCartney’s guitar solo has a psychedelic touch. The lyrics of the lead track (on the Beatle’s 1966 album Revolver), were interesting enough that I did a little research about them.  Turns out George Harrison wrote the song to protest the fact that most of their earnings were being given away to Harold Wilson’s Labour government in the form of taxes. The line, “that’s one for you, nineteen for me”, is a reference to the 95% supertax liability imposed on the top tax bracket in the United Kingdom during Wilson’s tenure as prime minister

“Taxman” gets a fair amount of play time on radio and television in the days leading up to the US Tax Day. Tax Day this year is Monday, April 16.  The deadline for filing personal income tax returns fills many filers, especially the procrastinators, with stress and angst.  What many people may not know is that until 1913, the US Constitution did not allow direct taxation of income by the federal government without distributing it among the states or in proportion to the US Census results.  With the ratification of the 16^th Amendment and President Wilson’s signing of the US Revenue Act of 1913 into law, the personal income tax became a permanent fixture.

While you’re working on those tax returns, take a look at line 61 of form 1040, line 35 of form 1040A, or line 10 of form 1040EZ.  If the entry on that line is greater than zero, you’ve paid personal income taxes.  Interestingly enough, a study from the Brookings Institution’s Tax Policy Center indicates that 46% of Americans will pay no federal income tax in 2011 or will receive more from the IRS in the form of a refund than they pay in (http://www.taxpolicycenter.org/UploadedPDF/1001547-Why-No-Income-Tax.pdf).

But what if your entry on line 61, or 35, or 10 is greater than zero?  How is your money used? Obviously, it is used to finance the federal government, but what does that really mean.  How much is collected by the federal government?  According to the Congressional Budget Office (CBO) report, “The Budget and Economic Outlook: Fiscal Years 2012 to 2022”, (http://www.cbo.gov/publication/42905) the federal government revenue totaled $2,302.5 billion. Stated another way, it collected over $2.3 trillion dollars in revenue.  Of that total, $1091.5 billion came from individual income taxes, $818.8 billion came from social insurance taxes, $181.1 came from corporate income taxes, and the rest came from excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts.  When you do the math, our federal income taxes account for approximately 47% of the revenue collected.

So where does it all go?  The graph below shows the various categories of government spending. The data used to build this graph is in the same CBO report.

Now, I’d like to point out some details.  The first thing to notice is the annual spending total exceeds the annual revenue total by almost $1.3 trillion.  For reference, $1.3 trillion dollars is $1,300,000,000,000 and if you earned $130,000 in wages per year for 10 million years, you would have earned $1.3 trillion in wages.

The second thing to notice is the net interest on the federal debt, $227.1 billion, is one-third the total defense budget.  As the debt increases, the interest payments increase accordingly.

The third thing to notice is the total spent on Social Security, Medicare, and Medicaid, roughly $1.6 trillion, is nearly double what is collected by the government in the form of social insurance taxes.

It should be obvious that we, as a country, cannot sustain trillion dollar deficits forever.  Just the interest payments alone account for 6% of spending.  What can we do about it?  Can you imagine the consequences if you handled your own finances the way the federal government handles theirs? 

So, take action.  First, educate yourself. Read House Concurrent Resolution 112, passed by the US House of Representatives (http://www.gpo.gov/fdsys/pkg/BILLS-112hconres112eh/pdf/BILLS-112hconres112eh.pdf).  The purpose of this resolution is to establish the budget for fiscal year 2013. It is an implementation of Representative Paul Ryan’s (R-WI) “The Path to Prosperity: A Blueprint for American Renewal”  (http://budget.house.gov/fy2013Prosperity/).

Read the  "Budget of the United States Government, Fiscal Year 2013", which contains the President’s budget message and information on the President’s budget priorities (http://www.whitehouse.gov/omb/budget/Overview). Compare the two budgets.  The CBO website (http://www.cbo.gov/) includes reports and budget projections based on both the President’s and Rep. Ryan’s budget visions.  Then decide for yourself in which direction the country should head. If you believe the plans fall short of your vision for the country, identify the pros and cons of each and use the pros to create your own plan.

Once you decide, contact your Congressman and your Senators.  Both the Senate and the House have websites (http://www.senate.gov/ and http://www.house.gov/, respectively) that identifies who represents you and how to contact them.  Tell them the direction you think the country should take.  Tell them what means the most to you.  And last, but not least, vote this November.  Use your vote to tell Congress and the President what you want.  The consequences are too grave to be uninformed about this and to sit by while the outcome is decided by others.