The National Debt: Where Do Our Tax Dollars Go?

If we are to address runaway federal spending, we also have to understand where tax dollars are being spent … and where they are not. Conversations with family, friends and students often reveal many misunderstandings about the federal budget and how our tax dollars are used. For example, especially when I’m at home in the South, I still hear many imply that we have a federal budget deficit and escalating debt because of welfare recipients. The facts are exactly the opposite. As the chart below illustrates, social safety net programs including all poverty or income-related programs comprise only 21 percent of the federal budget, and welfare a much smaller piece of that pie. Furthermore, I continue to find that many Americans still do not understand that the 1996 Welfare Reform Act placed a five year life-time cap on welfare benefits. If you don’t believe it, go visit an homeless shelter and you will find many who can no longer receive federal welfare benefits.

The chart below from CBO tells the true story about our federal spending, and as you can see, much of it is “mandatory spending” over which Congress or the President have little control. What is “mandatory spending?” To put it crudely but honestly, it is those programs that are entitlement based and which are too difficult to change politically because of their popularity and impact on large amounts of the population. For example, Social Security and Medicare are “mandatory spending programs” because they automatically accrue to an individual at a certain age, and Congress has little will to change these programs drastically. The largest “discretionary” item is defense, but because presidents and the Congress are reluctant to decrease the defense budget for policy or political reasons, it might as well be considered mandatory.

If we take military spending and entitlements off the table, there is only a small percentage of the federal budget left which can be used for budget reform. Even if these programs, such as welfare, were trimmed or eliminated, it only would be a “drop in the bucket” of savings if entitlement and military spending are not addressed and cut as well. Tomorrow I will discuss my 10 recommendations for cutting federal spending and putting our government back on the course of fiscal responsibility.

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