ECONOMY | POLICY | POLITICS

The Problem with How the U.S. Spends Your Taxes: A Foreigner’s Perspective

A critical look at U.S. fiscal policy and spending priorities.

7 min readNov 17, 2024

Introduction

With constant talk nowadays of cutting the Big Bad Federal Budget™, and with people like Elon Musk wanting to cap the number of federal agencies — the heavy sarcasm “deep state” — to the arbitrarily chosen number of 99 total — a more than 4x reduction! — I started to wonder: are taxes really being spent in a way that benefits people?

Well, the answer was both yes and no, and not for the reason you might think.

In this piece, I’ll go through why I came to this conclusion.

Before we start, I would like to add that I myself am also anti-bureaucracy.

Why am I making this piece criticizing these people’s plan, then? It’s simple: there’s a massive difference between regulation — the act of overseeing either a physical or legal entity in order to prevent potential harm — and bureaucracy — what I would categorize as needless burdens placed upon entities.

This difference seems to be inexistent in the eyes of right-leaning folks. It feels like all of these people accidentally — or purposefully — confuse my definition of bureaucracy with the one of regulation, and in their endless quest to end the former, they significantly cut down on the latter.

Because of this, yes, I do believe bureaucracy is bad for everyone, the government notwithstanding, but you cannot eliminate bureaucracy by eliminating regulation (unless you want an anarchistic system in which your water is full of waste because someone decided to dump their trash into the nearest river).

Before continuing, I should clarify that this article solely focuses on the taxes and budget at the federal level, not taxes levied by states or municipalities.

I will also clarify that I will mostly focus on taxes levied upon individuals and not companies, because I want to shed light on those.

Definitions

Internal Revenue Service

In the case of the United States, the IRS — or the Internal Revenue Service — is the federal agency tasked with collecting taxes.
Other countries have different agencies, for example: Romania has ANAF and Australia has the ATO.
The IRS is tasked with collecting taxes, but not with implementing new taxes, which, at the federal — or national — level, is done by the Congress.
The IRS collects taxes throughout the year through withholding money from paychecks and other methods.
Between January 1st and April 15th of the following year (for taxes from 2023, this ‘following year’ would be 2024), the IRS mandates that individuals file a tax return — put simply, you are required to disclose how much you made in the previous year — so that it knows whether it should have withheld more from someone or, more rarely, if it took too much.

Fiscal Year (FY)

A fiscal year is a different way of counting years compared to the calendar year (January to December).
In the US, it runs from October 1st of one year to September 30th of the next and is named after the calendar year it crosses into.
For example, Fiscal Year 2022 ran from October 1st of 2021 to September 30th of 2022.
Fiscal years aren’t necessarily relevant to individuals, as they mostly affect companies and the government itself.

Before diving into the specifics of how taxes are levied and spent, I should mention that I am writing this article as a foreigner from Romania, with no direct experience living in the U.S. My perspective, therefore, is shaped by observing American policies from afar, rather than by firsthand experience with the system.

But First, what is a Budget?

When talking about government budgets — and not about those of individuals or companies — we need to think about them as a big box, essentially a piggybank, of the respective government.

Every January — at least, ideally — the House introduces a new budget, which essentially states what taxes they will levy for the next fiscal year and how they can be spent by the government.

After it passes the House, it needs to also be approved by the Senate, where it can be amended before approval. After this, the President signs the budget into law.

Once all taxes are collected, they are distributed according to the budget previously signed into law.

What Taxes are Collected?

Strictly talking about individuals, the US uses a progressive tax system — essentially, the more you make, the more you pay as a percentage of that income.

Let’s take an example: you are a human being who made $60,000 in the year 2023. It means you paid $5,461 in taxes in 2024.

If you made $80,000, then, you would have paid $9,861.

[Calculations done through the tax calculator at calculator.net]

On April 15th, you will fall into different tax brackets, which your income will be separated into.

To learn more about how this works, I recommend Vox’s explainer on tax brackets, which really helped me understand how taxing individuals works.

Collected taxes don’t just pile up in a Swiss vault, they get spent. Where? Well, this is where the problem lies. It might surprise you just how much is wasted on unnecessary things that don’t benefit the vast majority of people.

How Taxes are Spent

Defense: a Financial and Human Killer

As you may know, a huge amount of taxes (about 15%) goes towards defense. Now, whether that defense simply includes safety or perhaps also some Iraqi-killing Apache helicopters isn’t the point.
According to the Stockholm International Peace Institute, the United States accounts for 39% of all military spending globally (39%!), which means it spends more than the next 10 countries in order from China to Ukraine combined! I would consider that incredibly disturbing, given the actual record of the US Army.

Social Programs: Big on the Surface, Small on a Closer Look

While on paper about 25% of taxes in annual budgets go towards the social security program alone, most people who actually had to go through that system would probably tell you that it’s not nearly funded enough.
This is the part where bureaucracy actually comes in, because a huge amount of the money going towards the social security program doesn’t get distributed to those in need. Instead, a lot of it goes towards keeping the Social Security Administration, which uses it for paying its own employees — obviously I’m not arguing against that part — and, more importantly, for checking whether those applying are actually in need.
The fact is, the SSA is made to go to great lengths to ensure that whoever gets money from them actually needs it — a standard which is so incredibly low, you would think that it hasn’t changed with inflation since the ’80s, and that’s because it hasn’t — and if they do need it, then once that money goes to them it can be very easily taken back.

The National Debt: Paying for Yesterdays Bad Decisions

About 8% of the budget simply goes to paying off companies and foreign governments who lent the US government money in the past.
This National Debt has been growing every single year for decades already, and it will not stop on its own.

Other, Less Important, Priorities

From what I could find, the rest of the budget goes towards other priorities which haven’t historically been viewed as importantly as the previous 3.
These priorities can include anything from the Department of Transportation, which oversees not only transportation but also a lot of infrastructure connected to transportation, to the Department of Energy, which itself not only oversees regulations on energy production and distribution but also, weirdly, the nation’s nuclear silos.

While the allocation of funds is problematic, the real issue begins when political games interfere with the funding of essential programs.

Politicians Cutting Budgets, then Blaming the Agencies

Ever since the Bush Administration, the nation has been more and more divided, which has sparked an increase in unqualified hacks looking to take office, promising to stick it to the man to the voters who elected them, while simultaneously being part of ‘the man’.

This has led to a lot of cases where important funding for education or infrastructure has been taken away — citing reasons such as ‘wokeness’ or ‘corruption’ — and given to the parts already spending the most, such as the Department of Defense.

After those agencies start running worse and worse because of the budget cuts, those same politicians use that as an excuse to say the agencies aren’t doing a good job and fueling even more cuts to their budgets.

Closing Thoughts

Overall, I believe that taxes are good.

My problem isn’t with the taxes themselves, but how they are allocated afterwards.

Politicians using budgets as a way to get what they want from their opponents by holding funding above agencies’ heads are, I concluded, the main problem.

However, a lot of things could run much more smoothly if there wasn’t as much need for unnecessary paperwork, lengthy wait times to get anything done when cooperating with the government and others.

With the current system, change feels slow. However, if the priorities of defense spending and government programs are addressed, taxes could be better allocated to support citizens, starting with those who need it the most.