A Different View of the Purpose of the Federal Government
I have been stewing recently over some comments I have seen from folks who are of a more libertarian leaning. They may prefer a different label, but labels are a good shorthand. Basically, these folks believe that we are and should be headed to a time when the bloated federal government is clipped back and income tax is basically eliminated.
The idea of eliminating income tax seemed crazy to me, but these are thoughtful people, so I have been doing some reading and thinking about what is being espoused here.
Here is what I found. If there are errors in my thinking or statistics, feel free to let me know. Quibbling is discouraged as I’m sure that my line-by-line numbers are not precisely accurate and reflect rounding in the data sources I found (which are linked at the end). But if you find a meaningful error, I’m happy to hear about it.
First, it’s worth pointing out that this vision of government is likely the real driver behind what is happening with DOGE. There are a lot of critics of DOGE in progressive social circles, but that is because in those circles there is a belief that, yes, of course waste and fraud should be eliminated, but that the underlying systems have essential value. That is not what is happening with DOGE and one wonders why. If you assume that the underlying systems are wasteful and should be eradicated, it becomes clear that DOGE is doing exactly what it is supposed to do.
All of this is in Project 2025, but that’s neither here nor there.
Here is how the numbers work from what I can see. This is a little nerdy, but if you are interested, read on.
In fiscal year 2024, we collected the following revenue at the federal level totaling $4.9 Trillion:
- · Individual Income Tax: $2.4 Trillion
- · Payroll Taxes: $1.7 Trillion
- · Corporate Income Tax: $530 Billion
- · Custom Duties (Tariffs): $77 Billion
- · Sales & Excise Tax: $101 Billion
- · Other Sources: $92 Billion
- · Social Security: $1.5 Trillion
- · National Defense: $1.3 Trillion (Includes Veterans Benefits)
- · Medicare: $874 Billion
- · Interest Payments: $973 Billion
- · Economy & Standard of Living: $695 Billion
- · Transfers to States: $462 Billion
- · Medicaid Transfer to States: $638 Billion
- · Other: $276 Billion
- · Safety: $105 Billion
(Note: These categories are as defined in the USAFacts Sankey chart linked below. One of the things it does is group Defense, Veteran Affairs, Foreign Aid, and Immigration all under Defense, which has some ironies in it.)
Deficit: $1.8 Trillion
Now, if we are talking about a fiscal policy that involves eliminating the income tax and erasing the deficit, but want to keep Social Security and the portion of Medicare funded by payroll taxes (you know, box 4 and box 6 on your W2) then we can adjust these numbers in the following way.
1. Remove
the Payroll Tax line from income ($1.7 Trillion).
2. Remove
the basic Social Security Retirement payment expense from spending ($1.3
Trillion). The social security payroll tax revenue covers almost all of this
expenditure. The slight imbalance ($42 Billion in 2024) is drawn down from the
Trust Fund, which at this time has a balance of $2.7 Trillion. Social Security
is self-sufficient, although as many have noted some adjustments will need to
be made to keep the Trust Fund solvent in future decades. This leaves a line
item of $200 Billion for Social Security, which represents the portion of Social
Security that is paid out for disabilities.
3. Reduce the Medicare Expense by $393 Billion. This is the amount of the Medicare benefit payments that are covered by the Payroll Tax. This leaves $487 Billion being paid through General Revenues.
Here is the updated list when the baseline Social Security and Medicare revenues and expenses are removed from the picture and we are just looking at other revenues and spending.
We can remove the Payroll Tax line from income, reducing
total income to $3.2 Trillion:
- · Individual Income Tax: $2.4 Trillion
- · Corporate Income Tax: $530 Billion
- · Custom Duties (Tariffs): $77 Billion
- · Sales & Excise Tax: $101 Billion
- · Other Sources: $92 Billion
We remove Social Security and reduce Medicare, reducing
total expenses to $5.1 Trillion:
- · National Defense: $1.3 Trillion (Includes Veterans Benefits)
- · Medicare: $487 Billion
- · Social Security Disability: $200 Billion
- · Interest Payments: $973 Billion
- · Economy & Standard of Living: $695 Billion
- · Transfers to States: $462 Billion
- · Medicaid Transfer to States: $638 Billion
- · Other: $276 Billion
- · Safety: $105 Billion
Deficit is Still: $1.8 Trillion
Okay, remember, the goal here is to eliminate the waste that is implicit in having a national income tax, and also to have a balanced budget.
In this new reality, federal revenues (tariffs, sales & excise taxes, and other sources) would land just shy of $400 Billion per year.
Sadly, the accumulated debt payments exceed that amount, so there would zero dollars available for any other federal government activity.
But wait, there’s hope! We’re going to have revenue from Tariffs. Currently, our revenue from tariffs is just shy of $80 Billion. But if we put tariffs on more stuff, that number will rise. How much can it rise?
Total imports in 2023 were $3.38 Trillion. If we put a 25% tariff on every single thing that comes into the United States, we could potentially raise $850 Billion per year. Of course, imports would plunge, the economy would tank, and the number would be much lower. (And it’s worth noting that consumers would largely pay for this in increased prices).
Let’s assume we raise $500 Billion per year from tariffs. Our revenue would be $500 Billion in tariffs and $193 Billion from other sources. A total budget of $693 Billion.
Still not enough to service the debt.
Let me remind you of the things for which there would be no funds.
Defense, Veterans Services, Immigration, Foreign Aid, Medicaid Insurance, Supplemental Medicare Programs, Highways, Trains, USPS, Services for the Disabled, Federal Courts, Farm Subsidies, ACA Insurance Subsidies, Social Safety Net, etc., etc., etc.
What the hell, let’s just cut the income tax in half but keep it around. That would raise $1.4T so our total budget would be $2.1T. Take out the $1T we need to service the debt and we’ve got $1.1T left to spread around our priorities. Take a look at the list above. How far is $1.1T going to go? I’m pretty sure the Defense budget will chew up at least half of it.
Of course, the wealthy will be able to pay directly for the things they need. How about the rest of us? Roughly 90 million people would lose their health insurance.
And, importantly, if you work from the premise that these things are not the purpose of government and are not of value, then all of this makes sense.
This was essentially the United States in the 1920s. It was
the gilded age. The only difference is that we’d have a retirement check and
minimal insurance when we get old.
https://www.ssa.gov/policy/trust-funds-summary.html
https://www.ssa.gov/history/InternetMyths2.html
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