10 April 2006

Pennies per Dollar of Federal Budget

The Tax Foundation used the Office of Management and Budget's FY 2007 Budget of the US Government to calculate the percentage of the Federal budget that goes to each of several broad categories.

Social security
$ 0.21
National defense
$ 0.19
Income security
$ 0.14
$ 0.13
$ 0.10
Net interest on Debt
$ 0.08
Education, training, employment, and social services
$ 0.04
$ 0.03
Veterans benefits and services
$ 0.03
All others*
$ 0.06
$ 1.00
* Includes community and regional development; administration of justice; international affairs; natural resources and environment; agriculture; general science, space, and technology; general government; commerce and housing credit; energy; and undistributed offsetting receipts.
Source: Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2007 (available at http://www.whitehouse.gov/omb/budget/fy2007/); Tax Foundation calculations.

Looking at that chart, it's hard to see where the "Starve the Beast" proponents plan to cut spending. The Tax Foundation also found that most people feel the same way.

What does that mean to you? Eventually, much like a consumer, the debtload of the Federal government will break its back and something will have to be done. If we can't cut spending, the government will have to raise revenues. That means tax increases, which don't seem very popular currently.

If you've got the choice between the IRA and a Roth IRA and you're in a pretty low tax situation now you may want to select a Roth because you will be locking in today's lower tax rates. If you're self-employed, it may not make a difference because you will pay an additional 15.3% in self-employment taxes on your IRA or Roth. If you have a 401(k) at work you may be able to hedge your bets by funding the 401(k) to get the maximum match and then contributing to a Roth. Contributions to Roths are subject to income maximums, so you'll have to make sure that you can make Roth contributions.

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