Lecture Notes on Federal Taxes and Spending

Introduction

• Discussion on the first paycheck experience and deductions.
• Highlight on Federal Insurance Contribution Act (FICA) and Federal Income Tax.

Historical Context of Income Tax

• Before 1913, income tax was forbidden by the U.S. Constitution.
• 16th Amendment allowed federal income tax.
• Historical tax rates:
  • 1981: Top tax rate was 70% for singles earning over $108,300.
  • 1945: Top rate was 94% for the ultra-wealthy.

Tax Breakdown and Spending in 2017

• Example of Tabitha, an HR worker earning $40,000.
• After deductions, her taxable income: $29,600.
• Tax bracket: 15%.
• Federal Taxes paid: $7,038.

Allocation of Tabitha’s Federal Taxes

• Social Security and Medicare: Nearly half of taxes go to these programs.
• Medical Programs: Largest chunk goes to Medicaid and CHIP.
  • Combined with FICA, ~60% of taxes support health insurance programs.
• Military Spending: $930 supports armed forces and military equipment.
• National Debt: $525 goes to debt repayment and interest.
• Unemployment and Labor: $298 allocated.
• Veteran’s Benefits: $238 for VA Hospitals and job training.
• Food & Agriculture: $179 allocated.
• Government Operations: $167 for agencies like FBI, Border Patrol.
• Transportation: $127 for FAA, TSA, etc.
• Education: $111 supports educational grants and arts.
• Housing & Community Programs: $83 allocated.
• Energy and Environment: $63 allocated.
• International Affairs: $51 for State Department and Peace Corps.
• Science Programs: $39 for federal research and space exploration.

Conclusion

• Federal taxes impact real people and societal changes.
• Citizens can influence tax spending by engaging with representatives.
• Emphasis on collective ownership of tax spending.

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