Federal Budget expenditures (approx. based on 2013 info)

If we use the above figures and pretend the budget was out of $100, this is what that would mean:

$100.00

18.00 = Military

2.80 = transportation

2.60 = education

1.80 = veterans benefits

1.70= income security

1.50 = health

1.50 = international affairs

1.40= justice

1.30 = regional develoment

1.10 = environment

.50 = science

65.80 = mandatory = cannot cut!!

We have defined the categories in the bar chart, tax calculator, and tax receipt as follows:

Military: $806 billion. National defense and security, nuclear weapons activities, and international security assistance. This includes subfunctions 051, 053, 054, 152.

Transportation: $39 billion. Development and support of air, water, ground and other transportation. This includes subfunctions 401, 402, 403, 407.

Education: $74 billion. Elementary, secondary, higher and vocational education. This includes subfunctions 501, 502, 503.

Veterans' Benefits: $130 billion. Health care, housing and income benefits for veterans. This includes subfunctions 701, 702, 703, 704, 705.

(income security) Social Security, Unemployment & Labor: $363 billion. Job training, disability, retirement, unemployment insurance, and Social Security. This includes subfunctions 504, 505, 601, 602, 603, 609, 651, 923. Food & Agriculture: $127 billion. Agriculture and nutritional assistance. This includes subfunctions 351, 352, 605.

Medicare & Health: $639 billion. Medicare, Medicaid, SCHIP and other health-related expenses. This includes subfunctions 551, 552, 554, 571, 921.

International Affairs: $36 billion. Diplomatic, development and humanitarian activities abroad. This includes subfunctions 151, 153, 154, 155.

(Justice) Government: $135 billion. Commerce, law enforcement, overhead costs of federal government and undistributed offsetting receipts. Excludes TARP repayment. This includes subfunctions 372, 373, 376, 751, 752, 753, 754, 801, 802, 803, 804, 805, 806, 808, 809, 922, 951, 953, 954, 959

(regional development) Housing & Community: $116 billion. Housing assistance and credit, community development and services supporting social needs. This includes subfunctions 371, 451, 452, 453, 506, 604, 925.

Energy & Environment: $58 billion. Natural resources and environment, supply and use of energy and science and research activities. This includes subfunctions 251, 252, 271, 272, 274, 276, 301, 302, 303, 304, 306.

Science: $31 billion. Science and research activities. This includes subfunctions 251, 252.

Lesson Ideas:

Activity Type: Group/Individual

Chapter: 5

Objective: Students will be able to articulate how tax dollars are allocated between different spending categories.

Description:

1.

Teacher facilitates an all-class activity primarily focused on individual federal income taxes.

On a very large piece of paper or multiple pieces of paper taped together, the teacher draws 13 vertical bars of equal height.

Label the bars to coincide with NPP's federal spending categories: Social Security, Unemployment & Labor; Medicare & Health; Military; Interest on Debt; Food & Agriculture; Veterans’ Benefits; Transportation; Education; Energy & Environment; Housing & Community; International Affairs; Government; and Science.

As students enter the classroom, hand each one 20 colored stickers or Post-It notes.

Once assembled, invite the students to pretend that they have just paid one dollar in federal income taxes.

Tell the students that each of their twenty stickers are worth 5 cents of their tax dollar.

Briefly describe the bar chart you have created and explain the contents of each spending category. It is very important that students understand each spending category. (Note: find the contents in Notes and Sources for Tax Day)

Invite students to gather around the bar chart and place their stickers on the empty bars to correspond with where they want the federal government to spend their federal income tax dollar. Students may spend their tax dollar in any way they choose. For example, if a student thinks the Education category deserves 30 cents of her taxes, she should place six stickers on the Education bar.

Once all students have completed this exercise ask them to take their seats.

  1. look at the actual distribution of the federal budget pic
  2. pass out the activity sheet: what are your priorities? In small groups come to a consensus: Divide up the $34.20 you have left into your choice of categories.
  3. me: we hit a recession and now we only collected 90.00 not 100.00 in taxes = you must now cut your categories by $10.00 or raise revenue (raise taxes)

Federal Revenue: Where Does the Money Come From

Federal Budget 101

The federal government raises trillions of dollars in tax revenue each year, though a variety of taxes and fees. Some taxes fund specific government programs, while other taxes fund the government in general. When all taxes for a given year are insufficient to cover all of the government's expenses - which has been the case in 45 out of the last 50 years1 - the U.S. Treasury borrows money to make up the difference.

In 2015, total federal revenues in fiscal year 2015 are expected to be $3.18 trillion.2 These revenues come from three major sources:

Income taxes paid by individuals: $1.48 trillion, or 47% of all tax revenues.

Payroll taxes paid jointly by workers and employers: $1.07 trillion, 34% of all tax revenues.

Corporate income taxes paid by businesses: $341.7 billion, or 11% of all tax revenues.

There are also a handful of other types of taxes, like customs duties and excise taxes that make up much smaller portions of federal revenue. Customs duties are taxes on imports, paid by the importer, while excise taxes are taxes levied on specific goods, like gasoline.

Once they are paid into the Treasury, income taxes and corporate taxes are designated as federal funds, while payroll taxes become trust funds. Federal funds are general revenues, meaning Congress and the president can decide to spend them on just about anything when they conduct the annual appropriations process (see our explanation of the federal budget process). Unlike federal funds, trust funds can be used only to pay for specific programs. The vast majority of trust fund revenues pay for Social Security and Medicare.

Income Taxes

The U.S. Constitution (Article I, Section 8) grants Congress the power to collect taxes. Early federal taxation was mostly in the form of excise taxes on goods such as alcohol and tobacco. Although an income tax existed briefly during the Civil War, it wasn't until 1913, with the ratification of the XVI Amendment to the Constitution, that income taxes became permanent. At that time fewer than 1 percent of people with the highest incomes paid income taxes.

Nowadays, more than 100 million American households file a federal tax return each year, and those income taxes make up the federal government's single largest revenue source.3 The income tax system is designed to be progressive. That is, the wealthy are meant to pay a larger percentage of their earnings than middle- or low-income earners. Due to the complexity of the tax code, however, this is not always the way it works out.

Corporate Taxes

Corporations pay income taxes similar to those paid by workers. Depending on how much profit a corporation makes, it pays a marginal tax rate anywhere from 15 to 35 percent.4 The top marginal tax rate for corporations, 35 percent, applies to taxable income over $18.3 million. As you can see in the line chart below, individual income taxes make up a much larger share of all federal tax revenues than corporate taxes do, in part because the wages and salaries of all Americans are much larger than profits of all U.S. corporations. The share of federal tax revenue paid by corporations has also declined substantially over time.

While the official tax rate for most corporations is 35 percent, the effective tax rate - that's the percentage of profits a corporation actually pays in taxes - varies enormously from one corporation to the next.5 That variation is the result of incredible complexity in the tax code as well as corporations' varying exploitation of "loopholes" to avoid tax liability. Loopholes refer to provisions in the tax code that exempt certain activities from regular taxation. For example, multinational corporations can allocate profits to overseas operations and reduce their tax liability by doing so. (For more about tax loopholes, see The Big Money in Tax Breaks.)

Payroll Taxes

While individual and corporate income taxes are designated as federal funds, as described above, payroll taxes are designated as trust funds. Trust funds can be used only for very specific purposes - mainly to pay for Social Security and Medicare. Social Security, officially called the Old Age, Survivors, and Disability Insurance program, is meant to ensure that elderly and disabled people do not live in poverty. Medicare is a federal program that provides health care coverage for senior citizens and the disabled.

Taxes to finance Social Security were established in 1935 as a payroll deduction - these are the payroll taxes you see taken directly out of your paycheck, labeled on pay stubs as Social Security and Medicare taxes or as "FICA," an abbreviation for the Federal Insurance Contributions Act. That's the law that mandates funding for Social Security by means of a payroll deduction.

The deductions from your paycheck are only half the story of payroll taxes. Employees and employers each pay 6.2 percent of wages into Social Security and 1.45 percent into Medicare. That means your employer deducts 7.65 percent of your wages from your paycheck to contribute to those programs, and then your employer contributes an equal amount, though you never see documentation of your employer's contribution.

Borrowing

In most years, the federal government spends more money than it takes in from tax revenues. To make up the difference, the Treasury borrows money by issuing bonds. Anyone can buy Treasury bonds, and, in effect, lend money to the Treasury by doing so. In fiscal year 2015, the federal government is expected to borrow $583 billion to make up the difference between $3.18 billion in revenues and $3.8 trillion in spending. Borrowing constitutes a major source of revenue for the federal government. Down the road, however, the Treasury must pay back the money it has borrowed, and pay interest as well. In 2015, the federal government will pay $229 billion in interest on the national debt. For more on this topic, see Federal Budget 101: Borrowing and the Federal Debt.

Endnotes

Office of Management and Budget, Historical Table 1.2.

Office of Management and Budget, President's Budget for Fiscal Year 2016, Budget Authority.

Internal Revenue Service, "Data Book 2014"

Internal Revenue Service, "Publication 542: Corporations," 14 Nov. 2013.

Citizens for Tax Justice, "The Sorry State of Corporate Taxes," February 2014.