What Happened to the Record Income Taxes Americans Paid Last Year

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Back in fiscal 2019, which ended last September before COVID-19 hit, the federal government set two records.

It collected more money in individual income taxes than in any previous year — and then spent more.

Did the Americans who paid that record sum in income taxes get their money’s worth?

Or were they ripped off?

Let’s start with the basic fiscal facts. In fiscal 2019, the federal government collected $1,717,857,000,000 in individual income taxes, according to the Monthly Treasury Statement for September 2019.

Even when adjusted for inflation, that was the most in individual income taxes the federal government had ever collected. It edged out fiscal 2018, when the government collected a then-record $1,683,537,000,000 (or $1,712, 347,440,000 in constant September 2019 dollars) in individual income taxes.

Of course, the federal government imposed more than just individual income taxes on American taxpayers in fiscal 2019. It also collected $1,243,087,000,000 in social insurance and retirement taxes; $230,245,000,000 in corporation income taxes; $98,915,000,000 in excise taxes; $70,784,000,000 in customs duties; $16,672,000,000 in estate and gift taxes; and $84,637,000,000 in other miscellaneous taxes.

All this added up to $3,462,196,000,000 in total tax collections, according to the Monthly Treasury Statement.

But that $3.46 trillion in taxes was not enough for the federal government.

In fiscal 2019, you see, it spent a record $4,446,584,000,000.

Before fiscal 2019, the most the government had ever spent in a fiscal year was in 2009. That was the year Congress enacted the Troubled Asset Relief Program to bail out banks and President Barack Obama’s stimulus, theoretically aimed at propelling America out of the recession that ended that June.

Total federal spending in Obama’s first fiscal year reached $4,186,882,840,000 (in constant September 2019 dollars). But that was still $259,701,160,000 less than the new record in spending the federal government achieved last year.

With its record spending in fiscal 2019, the federal government ran a deficit of $984,388,000,000 — even as it collected record individual income taxes.

So, what are Americans getting for the dollars the federal government extracts from their income?

In February, the Congressional Research Service updated a report about what it politely calls “federal spending on benefits and services for people with low income.”

It counted $917,779,000,000 in federal spending on these types of “benefits and services” in fiscal 2018 alone.

A section of the report provides “caveats” about how one should understand these “benefits and services.”

“Programs included here are not social insurance,” it says. “That term refers to programs intended to insure Americans against the loss of wages and work-related benefits due to retirement, disability, or temporary unemployment (e.g. Social Security, Medicare, Unemployment Insurance). Social insurance benefits are generally entitlements earned through work.”

The CRS report also warns against considering the programs it counts as “welfare.”

“Programs in this report cannot be collectively characterized as welfare,” it says. “Welfare is typically thought of as government assistance to help poor people pay for necessities. As defined in this report, low-income programs are much broader, and include in-kind benefits and activities such as education, social services, and community development, among others.”

So, what were the most significant “benefits and services” the federal government spent this $917,779,000,000 on in fiscal 2018?

“Four programs accounted for 68% of low-income spending in FY2018 and ten programs made up 82%,” the report said. “Medicaid alone represented 48% of the total.

“In addition to Medicaid,” the report said, “the top four include the Supplemental Nutrition Assistance Program (SNAP), the refundable portion of the Earned Income Tax Credit (EITC), and Supplemental Security Income (SSI).”

In fact, according to the report, the federal government spent $441,392,000,000 on Medicaid in fiscal 2018; $63,111,000,000 on SNAP; $58,640,000,000 on the refundable portion of the Earned Income Tax Credit; and $57,934,000,000 on Supplemental Security Income.

In fiscal 2018, when the federal government was directing $917,779,000,000 (in 2018 dollars) to the programs counted in the CRS report, it was collecting the then-record $1,683,537,000,000 (in 2018 dollars) in individual income taxes.

If, for the sake of argument, you assume all of the $917,779,000,000 the federal government spent in FY2018 on the “benefits and services for low-income people” counted in the CRS report was paid for with revenue derived from the then-record $1,683,537,000,000 the Treasury collected in individual income taxes, that would leave $765,758,000,000 in individual income tax revenue to be spent on other things.

Then assume that some of that remaining $765,758,000,000 was used to pay the $324,697,000,000 in net interest on the federal debt the Treasury paid in fiscal 2018.

That would leave $441,061,000,000 in revenue from individual income tax collections not yet spent.

Now assume all of that remaining $441,061,000,000 was used to help pay for the $600,706,000,000 the government spent on the Department of Defense and Military Programs in fiscal 2018.

After expending every dollar of remaining individual income tax revenue, the government would still need to find another $159,645,000,000 to fully fund the nation’s defense.

Thus, after funding the “benefits and services for people with low income” that were counted in the Congressional Research Service report and the net interest on the debt and a portion of the Defense Department and Military Programs, there would be no revenue left from individual income tax collections to pay for such things as a Department of Justice or a Department of State.

Or a White House, House or Senate.

They would need to be funded from other sources of federal tax revenue — or with more debt.