How is the Government Spending Taxes?

It is the week after the deadline for filing taxes. Many taxpayers are waiting for their refunds, or have just realized they owe the government money. Many are aware of just how much of their earnings just went to taxes, and they’re probably wondering how their governments are spending taxes gained from their hard-earned money.

Healthcare and Retirement are almost half of the entire federal budget

policybasics-wheretaxdollarsgo-f1Most Americans have very little set aside, let alone set aside for retirement. But all along most Americans have been paying into Social Security via payroll taxes. Starting at age 62, with full benefits being available at 65, Social Security offers retirement to a large number of Americans who otherwise wouldn’t have enough saved or invested. AARP estimates that nearly half of all elderly Americans depend on Social Security as their primary income. Without it, estimates are that over a third of elderly America would slide into poverty. Not surprisingly, this is why Social Security was created in the first place, in the 1930s. It was designed during the Great Depression to combat the large numbers of elderly poor on the streets of America. For every dollar in taxes someone pays, 24 cents of it is going toward this program.

Another 24 cents goes toward non-defense healthcare costs (veteran’s health comes under another category). The programs are Medicare, Medicaid, CHiP and the recent exchanges set up for the Affordable Care Act. These programs cover some 118 or so million people in the USA.

Medicare is another benefit for retirees, a national healthcare program that is available to people 65 and older. 48 million people are in Medicare. It’s easy to see that a large bulk of taxes goes toward ensuring retirement and health benefits for older Americans.

Medicaid helps around 46 million low-income Americans who wouldn’t be able to get health insurance. Those who make up to 133% of the Federal Poverty Level go on this program.

CHIP is health insurance for children of low income but not poverty level families. It only covers children, and is used primarily by families making about 200% of the Federal Poverty Level. Almost 8 million children in the USA have been covered by CHIP, and the program was recently extended out to almost 4 million more during recent changes in healthcare law.

lzi_gpd6puu6buc0blijhqThe recent ACA health exchanges signed into law offer healthcare to those who run small businesses, freelance or who cannot get healthcare from their employers. In 2013 the number of Americans without health insurance hit an all time high of 18%, or almost a fifth of the entire population. The percentage now stands at 11.9% according to Gallup. The website ACASignups which tracks the success of ACA, estimates over 12 million Americans are covered by ACA.


The USA has one of the largest defense budgets in the world. And it shows comes tax time. 18% of taxes goes toward keeping soldiers paid, ships moving across oceans and planes ready to fight.


via Wikipedia/Blaue Max

The US Defense Budget is higher than the next nine countries combined, according to Wikipedia. That includes China, Russia and Saudi Arabia, who would have about half of the US budget if all three of them were combined.

shutterstock_106646615However, the recent wars in Iraq and Afghanistan were not paid through the normal yearly budget process, but by a special appropriations. That means the wars were paid via debt. Estimates vary, but it seems like over a trillion dollars has been added to the US debt as a result.

Safety Net Programs

shutterstock_141224527About 11 cents of every dollar spent on taxes goes toward safety net programs that help the poor. This includes what are commonly called ‘food stamps’ but is actually called SNAP (Supplemental Nutrition Assistance Program), which provides almost 47 million Americans with roughly $125 a month (a little over $4 a day) a person to buy food. SNAP represents roughly 2% of the overall Federal Budget. School Lunch Program, School Breakfast and the Women, Infant and Child Food programs all help families in need get food to children, who are not responsible for their family’s place in society and need nutrition. There are also programs for the elderly poor.

Temporary Assistance for Needy Families is a cash benefit to the poor. It is less than a fifth of the SNAP program, taking about a half a cent out of every tax dollar. Other cash benefits include foster care and adoption assistance for children who are orphaned or who cannot live with their families.

Read: Do Low Income People Pay Taxes?

Housing is another area where the safety net programs spend money. The most famous is public housing, which is barely over 1% of the tax bill. In addition to section 8 and public housing, there are low income tax house credits to developers, homeless assistance grants, rural housing services and grants, elderly housing and disability housing. All of that together adds up to $56 billion, which sounds like a lot, but is just a section of the 11 cents that goes toward Safety Nets.

Interest Payments

1024px-USDebtThe government holds debt, a wide variety of kinds of debt. As mentioned above, a large part of the recent two wars was paid via debt. Infrastructure costs, as well as the deficit (if the government doesn’t have a balanced budget), are also paid via the government taking out loans. About 7% of the budget is directed toward paying off loans.

How much does the government owe? Over $10 trillion. That sounds like a lot. It is a lot. However the US government doesn’t have to pay high interest like a regular citizen. Governments right now can get debt financed for 1-2% APR. That’s why, even with only $10 trillion in debt, only 7% of the budget goes to payments. The average US salary is $52,000 a year. If the government was an average salary worker, the interest payments would be like a $303.33 payment a month.

Federal employees and veterans care

Government employees and veterans take up 8% of the budget. Veterans have served their country, and the government is obligated to take care of them. These promises include retirement benefits, medical care, education benefits and more.

Federal employees are employees of the government. And just like a large corporation provides for healthcare and retirement, the US government acts as a responsible employer and takes care of the people who currently work for it and have worked for it.

Transportation infrastructure

America is famous for it’s car-oriented culture and large distances. It takes a lot of money to pave the highways that run from sea to shining sea, and that accounts for 3%, or 3 pennies for every tax dollar.

Unfortunately those 3 pennies are not enough to keep up with road needs. One in ten U.S bridges needs repaired due to age and condition.


The US has a very educated populace, with a 99% literacy rate. That comes due to investment in education, which is about 2% of the taxes spent. From Kindergarten on through high school, public schooling makes sure all Americans have a chance at education. This money also includes investments in buildings and college assistance.

What about Foreign Aid… and NASA?

Americans consistently wildly overestimate how much of their tax money goes to foreign aid, with 28% being the average answer. The truth? About 1% of the budget goes to foreign aid, and it comes out of defense spending.

Expedition 43 LaunchThe same goes for NASA spending, with Americans assuming the expensive task of going to space eats up a large chunk of their tax money. Space is expensive, no doubt, but NASA’s roughly $20 billion budget doesn’t even scrape half of a percent.


Policy Basics: Where Do Our Federal Tax Dollars Go? –

Social Security: Who’s Counting On It? – AARP

Official Social Security Website –

Medicare –

Medicaid –

CHiPs –

In U.S., Uninsured Rate Dips to 11.9% in First Quarter – Gallup


National debt of the United States – Wikipedia

One in ten U.S. bridges in urgent need of repair – Reuters

The budget myth that won’t die: Americans still think 28 percent of the budget goes to foreign aid – Washington Post