Good morning & happy Monday!
“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”
– Mark Twain
Well, here it is, Tax Day! I know it’s a highlight of your year! 😉
I don’t think today’s message is going to be a real pick-me-up, but I thought it might be helpful to understand a bit about our U.S. government, how much is collected, how much is spent, where it is spent, and other related information.
According to the IRS website (SOI Tax Stats – IRS Data Book | Internal Revenue Service) the Internal Revenue Service collected $4.9 trillion in taxes and processed more than 262.8 million tax returns in 2022. According to Treasury.gov the U.S. government spent $6.13 trillion in 2023 (Federal Spending | U.S. Treasury Fiscal Data)
With roughly 333 million citizens that means the average tax paid is $14,714 per person (this includes children).
The number one expenditure of the U.S. government is Social Security benefits that accounted for 22% of expenditures in 2023. Health and national defense accounted for 14% each with 13% going to pay interest on our debt and 12% going to Medicare.
Two things I want to make sure to address because this oftentimes causes confusion: the deficit and the debt.
- The deficit is the difference between what the government brings in (revenue) and what they spend (expenditures). If they spend more than they take in, then the difference is the deficit. In 2023 the deficit was $1.7 trillion. $1,700,000,000,000! That’s a lot of zeros!!! In 2023 the government spent $1.7 trillion MORE than they brought in.
- On an individual level this would be like having a household income of $100,000 and spending $120,000 in the same year – the deficit is how much more you spent than you brought in during that given year.
- The debt is the total amount of money the government owes. Currently that number sits around $34.6 trillion dollars (and growing!).
- One an individual level this would be like being $10,000 in credit card debt. Some of that would have been from recent purchases, some from purchases some time ago, some from interest … the debt is the total amount you owe the credit card company.
If you are looking to get really depressed check out www.usdebtclock.org for live running tally of the debt, deficit, and all sorts of other financial information. According to this website, if the U.S. debt were to be paid off it would take almost $267,000 from every man, woman & child in America!
Ok, I know this is very discouraging and is a major concern for many of us, myself included. I personally am a big proponent of governmental fiscal responsibility, but Washington D.C. has yet to call me up to give my opinion on these matters. 😉 Heck, Joe Biden’s budget proposal for 2025 has $7.3 trillion of government spending, over $1 trillion more than the government spent last year. It seems that fiscal responsibility is not in the government’s vocabulary these days, the last time the government brought in what it spent (a balanced budget) was in 2001.
So, what can be done about this? Here are my humble suggestions:
- Engage in the political process. When a politician is making promises for more spending for this or that a great question to ask is “how will that be paid for?” Please realize, nothing is free.
- Realize that out of control government spending is not exclusively a U.S. problem. Japan, Greece, Singapore, and Italy all have debt that is higher than the United States when comparing debt to GDP. The G7 average debt vs. GDP is 128%, the U.S. sits at 123%. Ranked: Government Debt by Country, in Advanced Economies (visualcapitalist.com).
- The G7 countries are the United States, Canada, France, Germany, Italy, Japan and the United Kingdom.
- Understand that the majority of the U.S. debt is held by U.S. citizens, only about 24% of U.S. debt is foreign owned. This means that the government primarily owes its own citizens.
- Manage your personal finances better than the government. It’s almost like you can ask yourself “what would the government do?” and then do the opposite 😉. I hope a little humor is helpful.
I know this was not a normal Monday morning memo with a positive message, but this is the reality of where we are. We don’t have to like it, we don’t have to agree with it, but it is what it is.
As we make financial decisions, we have to do so with the backdrop of understanding of how our government operates. We can’t and won’t make decisions with our head in the sand on these matters. We will choose prudent investment strategies regardless of how responsible or irresponsible our government manages our tax dollars.
I promise a more upbeat message next week 😊
Thank you for the tremendous privilege of partnering with you. Make it a great week ahead!