Tax Day 2013: The Fiscal Cliff, Your Taxes and Where They Go

Despite the horror stories of delays and complex messes, this Tax Day hasn’t been as bad as it was hyped to be.

The deal struck on January 1st, 2013 provided the Internal Revenue Service (IRS) with ample time to prepare and fix some of the internal problems that were supposed to be disastrous for the agency on April 15th. Although the worry seems to be for naught, there are still a multitude of consequences that come from the dilemma of the fiscal cliff.

Congress decided to keep the Bush-era tax policies for all families who earn a tax income lower than $450,000 and for all single-investors who earn less than $400,000. A crucial part of the deal is that these policies were made permanent, so Congress no longer can debate them further. There will no longer be uncertainty for taxpayers about what their tax rate will be.

Not all that came from the deal was good. Congress failed to extend certain policies so some permanent tax increases were also included in the deal. The reduction of the Payroll Tax from 6.2% to 4.2% has expired, which will drive up rates for primarily middle-class taxpayers. Additionally, the marginal income tax rate was allowed to rise for families with a taxable income greater than $450,000 and for single filers who have a taxable income over $400,000. This tax increase may put more of a burden on small businesses and investors.


The Fiscal Cliff additionally affected how quickly taxes have been filed. Since the IRS did not start to accept certain returns until mid-March, it is likely that many taxpayers will request extensions and file taxes late. The slower than usual process of filing taxes has been a downside of Tax Day 2013, although it may have been much worse.

So once taxes have been filed, where do they go? A percentage of the total income tax revenue is distributed to a variety of categories. According to the White House, National Defense and Healthcare take up the vast majority of federal income tax revenue. 24.64% of the total revenue from income tax payments goes to the general category of National Defense and 22.45% goes to Healthcare. The single largest portion of the revenue is 10.26%, which is allocated to fund ongoing operations, equipment and supplies under the National Defense budget. Other areas where taxpayer dollars are spent include job and family security, education and job training, veteran’s benefits and much more. There additionally are the federal social security and Medicare taxes, which go to their respective programs.

The White House has an interactive site – whitehouse.gov/taxreceipt – where taxpayers can plug in tax payments to see how their tax dollars are divided up and exactly how much they pay to each area of government spending.

Visit Politico.com for more information on Tax Day 2013 and the Heritage Foundation for more information on the fiscal cliff and its effects on taxes.

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