We know taxes pay for everything from roads to defense and social programs to public education. But do you know how much goes to each type of program?

Paying taxes can be stressful. Do you know where the money goes? photo credit: Shutterstock

For the majority of Americans, $10,000-$20,000 is a huge chunk of change. Typically, an amount that sizable is spent on a brand-new car, a down payment on a house, or even a start-up business.

Let’s face it—not many of us can just fork over that kind of cash. Sure, with smart planning, budgeting and a few sacrifices, it is possible for some, but most Americans still struggle to save much, if any, money due to life circumstances. But you probably already knew that. What you may not be familiar with is the fact that the average U.S. family pays the federal government at least that amount in taxes each year, and many of us only have a vague sense of where the money goes.

Of course, we know taxes pay for everything from roads to defense and social programs to public education.  But the specific breakdown of tax spending is something most Americans give little to no thought to—even though taxes are the biggest single line item for the common American each year.

Civics Lesson: The Bipartisan Budget Act of 2015

In October 28, 2015, the House amended and passed the Senate amendment to H.R. 1314, the Bipartisan Budget Act of 2015, by a vote of 266-167. This act funds from the Old-Age and Survivors Insurance trust fund to the Disability Insurance (DI) trust fund to ensure payment of full disability benefits into 2022; without such a reallocation the DI trust fund would have been depleted in December 2016. In addition, the bill suspends the debt limit until March 15, 2017; partially rolls back the sequester of discretionary spending scheduled for FY 2016 and FY 2017; and reduces the amount of increase in Medicare Part B premiums for certain beneficiaries in 2016.

photo credit: Shutterstock

So, let’s ponder this: Where does our tax money go?

Historically, according to National Priorities, federal spending has hovered around 20% of gross domestic product (GDP). In 2016, total spending was 21.5% of GDP, and over the long term, the biggest growth in spending has been on the various human services programs (including Medicare and Social Security). The share of GDP spent on defense actually fell to 3.3% in 2016 after hitting a high of 6% in 1986.

In fiscal year 2015, the federal government spent $3.8 trillion, amounting to 21 percent of the nation’s gross domestic product. Of that $3.8 trillion, over $3.3 trillion was financed by federal revenues. The remaining amount ($584 billion) was financed by borrowing. Below, are two major areas of spending:

Mandatory:

Mandatory spending was established by prior acts of Congress, and it can’t be changed without another act. A total of $2.301 trillion was spent. This makes up nearly two-thirds of the total federal budget. Social Security alone comprises more than a third of mandatory spending and around 23 percent of the total federal budget. Medicare makes up an additional 23 percent of mandatory spending and 15 percent of the total federal budget.

Social Security cost $882 billion, lower than the estimate of $896 billion. It’s 100 percent paid for by payroll taxes (so it doesn’t add to the deficit). Medicare was next, at $540 billion. This was higher than the $526 billion first estimated. It’s only 57 percent funded by payroll taxes and premiums. Medicaid totaled $350 billion.

The rest of the mandatory programs, including food stamps, unemployment compensation, and supplemental security for the disabled, totaled $529 billion.

Discretionary:

This type of spending must comply with the Bipartisan Budget Act. Congress approved $1.11 trillion for the 2015 discretionary budget. Here is the breakdown for the major departments the budget goes to:

  • Department of Defense – $496.1 billion.
  • Health and Human Services – $80.3 billion.
  • Education – $66.9 billion.
  • Veterans Affairs – $65.1 billion.
  • Homeland Security – $39.9 billion.
  • Energy Department – $27.4 billion. That includes $11.4 billion for the National Nuclear Security Administration.
  • Housing and Urban Development – $30.4 billion.
  • Justice Department – $26.3 billion.
  • State Department – $40.9 billion.
  • NASA – $18.1 billion.

While individual Americans have no direct control over how their tax dollars are spent, it’s important to know where the money actually goes. It’s especially important to understand that any major increases—for example, in defense spending, as President Donald Trump has proposed—require cuts elsewhere. With more than two-thirds of the budget going to social insurance programs, it’s hard, if not impossible, to make major changes without impacting those programs.

Ultimately, most of our tax dollars go to taking care of other Americans, followed by paying for defense. The amounts devoted to everything else, including the most controversial and hotly debated government programs, receive a relative pittance compared to the overall amount of money spent by the federal government.

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