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Current time:0:00Total duration:6:24
CON‑3.B.4 (EK)

Video transcript

what we're going to do in this video is talk about the broad categories of where the federal government gets its revenue and also the broad categories of where it spends its revenue and now when we talk about revenue for the federal government that primarily comes in the form of taxes and what we see in this visual it shows the four basic types of taxes that the federal government collects you have individual income taxes which you are probably familiar with if you ever get a pay stub and if you thought you were making let's say a thousand dollars in a pay period you might see your paycheck is closer to six hundred dollars because there might be individual income taxes taken out at both the federal and the state level then you have payroll taxes and unless you are an employer you might not be familiar with payroll taxes above and beyond your individual income taxes your employer also pays taxes called payroll taxes now these are primarily to pay for things like Social Security Medicare unemployment insurance and some of you are saying well don't they take that out of my individual income taxes as well and the answer is yes but above and beyond what is individually paid by you they also take payroll taxes to fund that corporate taxes are taxes on corporations profits and excise taxes which you don't hear folks talk a lot about these days but these are taxes on things like gasoline or alcohol and tobacco or airline tickets that are usually baked into those products and those taxes can oftentimes go to the federal government now pause this video and see if you see any interesting trends this visual here shows the breakdown between these four taxes for the federal government's revenue and how it's changed from 1950 all the way to 2015 well it looks like individual income taxes as a percent of total government revenue has stayed roughly stable but what you see is that payroll taxes have grown dramatically while corporate taxes have shrunk payroll taxes have gone from 11% of the federal government's revenue in 1952 nearly one third of the federal government's revenue in 20:15 corporate taxes have gone down from 26.5% all the way down to ten point six percent and excise taxes are a very small percentage they used to be a significant part but they are now a very small part of total government revenue now one thing to keep in mind this visual over here just shows the breakdown it's not showing the absolute level if you are seeing the absolute level of government revenue you would see that grow as the nation's GDP grew as well but in big categories where does that revenue get spent well this is a similar diagram that shows the breakdown of outlays by the federal government from 1962 all the way and these are going unto projected outlays to 2020 at the time of this video we are right over here in 2017 and this chart was made in 2016 so it was made at around this time but you see a couple of big categories you first see the mandatory outlays and in parentheses it says on autopilot what does that mean well these are commitments that the federal government has already made by law to people these are things like entitlements like Social Security like Medicare and one interesting trend is these have grown in 1962 from 25% of the total federal budget to a projected almost two thirds of the federal budget in 2020 now the discretionary outlays are things that when we talk about the Appropriations committees in the Senate or the house this is what they're debating where to spend the money and even though it might sound something that's just a nice-to-have there's some pretty important things in the discretionary budget things like military expenditure and as you can see the discretionary budget has gone from over 2/3 of federal outlays to a little under 1/4 projected in 2020 and then this top category net interest well the federal government has a debt and anyone who has a debt tends to pay interest on that debt and so many people will often categorize this as a mandatory outlay as well because we need to pay the interest on that debt even though it's not officially a mandatory outlay and to see how significant these entitlement programs are and how big of an impact they have not just on the federal government's budget but as a percentage of GDP we have this visual right over here and once again this is projecting well into the future this chart was created in 2016 so right about here but you can see that these mandatory outlays as a percentage of the GDP here so this is not just as a percentage of the budget they are growing and growing and growing and expected to keep on growing while total revenue as a percentage of GDP is expected to stay flat and take all of this with a grain of salt this is based on assumptions made at the time when this diagram was made if we have varying levels of economic growth or the tax policies change it's possible that the total revenue as a percentage of GDP might change also if there changes to some of these entitlement programs like Social Security or the health care programs or some of the cost assumptions baked into this chart changes well then this diagram might change but if you assume the data in this visual here and the source was the White House in 2016 you see that the mandatory outlays from these entitlement programs and the net interest which is also essentially mandatory these are going to take up all of the revenue that the federal government collects and so if the federal government wants to do anything above and beyond those things discretionary spending and once again some of this discretionary spending is pretty important like the military well then they would have to run a deficit in those years to fund those things or they would have to increase the total revenue and the thing is even once we get past this point going to the 2040s all the way the 2050s it gets worse and worse and worse so something has got to give here