October is about as far as you can possibly get away from Tax Day, but for the federal government it's the beginning of a new fiscal year, which begins on Oct. 1 of each year and ends on Sept.30 of the following year. Thus, fiscal 2016 is already over on Capitol Hill.
With the end of a fiscal year comes the highly anticipated Monthly Treasury Statement from the U.S. Treasury Department. This document is a 30-some page financial statement that allows the public an under-the-hood look at how the federal government receives tax revenue to keep the economy running, as well as where the money it receives is spent. With the fiscal year now in the books, we can take a brief look at how the government raised most of its money, as well as where those dollars wound up going.
Best of all, we have a handy chart provided by the Treasury Department to help us along the way.
How the federal government generated money in 2016
All told, the U.S. government collected $3.267 trillion (noted as $3,267 billion in the chart below) in fiscal 2016. The vast majority of revenue came from the collection of taxes.
Individual income tax returns filed by an estimated 150 million-plus people in 2016 resulted in the collection of nearly $1.55 trillion. This figure is all the more impressive when you take into account the fact that 4 in 5 taxpayers receive refunds from the federal government in a given year. In a typical year, the top 1% of income earners in the U.S. pay more than 25% of all federal income tax revenue collected by the IRS.
Running a fairly close second in revenue collection with $1.12 trillion in fiscal 2016 were Social Security and other payroll taxes. Among social programs, Social Security is by far the largest. Not surprisingly, the 12.4% payroll tax that workers pay on earned income between $1 and $118,500 generates a lot of money for the federal government each year. This tax is typically split down the middle between you (6.2%) and your employer (6.2%), while self-employed people pay the full amount.
In a distant third place are corporate income taxes, which generated $300 billion in revenue for the federal government in fiscal 2016. The U.S. has one of the highest peak corporate income tax rates in the world, with only Chad and the United Arab Emirates sporting higher rates. Just think how much tax revenue could be collected by the IRS if the approximately $2.1 trillion in corporate profits being held in overseas markets were repatriated.
Finally, $306 billion was collected from a plethora of additional taxes and duties according to the final monthly statement from the Treasury. This included the collection of more than $95 billion in excise taxes, $21 billion in estate and gift taxes, and $35 billion in custom duties.
The $3.267 trillion collected by the U.S. government in fiscal 2016 is an all-time high.
How the federal government spent money in 2016
Now that you have a better understanding of where the money came from, let's take a brief look at where it ended up.
As you can see in the chart provided by the Treasury Department, $3.854 trillion was spent by the federal government in 2016, which actually came in $17 billion below the fiscal 2016 budget passed by President Obama.
The biggest expense, which should be no surprise, was Social Security. The program, which pays out benefits to nearly 61 million people a month, is primarily there to provide a financial foundation for seniors during retirement. In 2016, the program paid out $916 billion in benefits; this figure is expected to rise as the beneficiary base grows with the ongoing retirement of baby boomers.
Interestingly enough there was actually a tie in spending for second between Medicare and Defense -- each received $595 billion from the federal government. Of the roughly 56 million people who qualify for Medicare, about 5 in 6 are aged 65 and up, making the Medicare program vital for the well-being of our nation's seniors.
A significant chunk of the defense spending goes to fund military operations and pay the salaries of military personnel. The United States' military expenditures are higher than the combined defense spending of the next eight-highest nations.
In fiscal 2016 the federal government also spent $241 billion just servicing the interest on its more than $19 trillion in existing national debt. The higher the debt level goes, the bigger this annual interest servicing expense will be.
The remaining $1.51 trillion was split among a multitude of programs -- including $138 billion to the Department of Agriculture, $78 billion to the Department of Transportation, $174 billion to the Department of Veterans Affairs, and $91 billion to the Office of Personnel Management.
How'd the government fare in 2016?
So how did the government do compared to the budget it passed? As noted above, it did come in with spending that was $17 billion below expectations, but that didn't stop it from running a $587 billion deficit in fiscal 2016. This reversed a four-year trend of successively lower budget deficits in each year since 2011 -- though it's worth noting that with the exception of a few years when a surplus was recognized while former-President Bill Clinton was in the Oval Office, budget deficits are quite the norm.
Looking ahead, budget deficits are likely going to remain the norm regardless of who takes the helm as our next president. Republican candidate Donald Trump has proposed substantial tax cuts that could reduce federal revenue collection. Meanwhile, Democratic candidate Hillary Clinton would raise taxes on the wealthy, likely boosting tax revenue collection, but nowhere near enough to get anywhere near a balanced budget.
For the time being, the American public should remain accustomed to the federal government running in the red.