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Friday, June 8, 2012

"If Paychecks Could Talk"

Economystified reader Andrew T. turned me on recently to the National Priorities Project.  Its an organization that produces free educational resources to help you learn about federal finance and spending.

Check out their website, its full of good stuff!  Lots of colorful graphs!

I thought this video was particularly informative and particularly corny.  By my count, that makes it particularly worth watching.

In only 4 minutes, NPP provides a pretty clear and concise explanation of what taxes coming out of your paycheck go where.  So I encourage you to spend the time you would have otherwise spent reading Economystified to watching this here video.

People often assume that tax policy and governmental finance is somehow super technical stuff you need a degree to understand.  Its absolutely not.  This is stuff that anyone can get their minds around and think about critically.

Watch the video a few times if you have to!  If you have any follow up questions, post them in the comments section below.

If Paychecks Could Talk

There's just a couple of points that I think they could have hammered a bit more:

1) Your "FICA taxes" go into "Trust Funds," which go towards "Mandatory Spending," spending the government is required by law to do (namely, Social Security, Medicaid and Medicare).

2) Your "Federal Income taxes" go to "the Federal Funds," which go towards "Discretionary Spending," spending at the "discretion" of the Federal Govt.  This is the spending that flexes every year that everyone is always fighting about.

3) Payments on the national debt come out of the Federal Funds as well.

4) In addition to the Fed, the state you live in ALSO taxes your income.  For example, if you live in New York, the Fed takes a chunk of your paycheck (FICA+Federal Income Tax), and New York State takes a chunk (State Income Tax).

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