Where Do My Federal Tax Dollars Go?

There’s a lot of misinformation out there about federal taxes. Understanding where your tax dollars go is helpful both for more informed citizenship and to have a better understanding of your finances. As we review and break down the federal budget for fiscal year 2023, we’ll highlight the key areas where the government allocates its resources and why these investments matter.

A Snapshot of Federal Spending in 2023

In fiscal year 2023, the federal government spent a total of about $6.1 trillion (Congressional Budget Office), which accounted for 22.7% of the nation’s Gross Domestic Product (GDP). Of the $6.1 trillion spent, over $4.4 trillion was financed by federal revenues, with the remaining $1.7 trillion coming from additional borrowing.

Top Areas of Program Spending

Federal spending is primarily concentrated in four major areas: Health, Social Security, defense, and interest on federal debt. 

Health Programs – $1.6 Trillion (24% of the Budget)

‍Health programs make up a significant portion of the federal budget. The main programs are:

• Medicare: Allocated $848 billion, Medicare provides health coverage to approximately 65.7 million people who are 65 or older or have disabilities.
• Medicaid and CHIP: Together, these programs received $633 billion. They offer health coverage and long-term care to 93.9 million low-income individuals, including children, parents, older adults, and people with disabilities.
• Affordable Care Act (ACA) Subsidies: $91 billion went towards subsidies that help lower premiums and out-of-pocket costs for those enrolled in ACA marketplaces.

These programs are crucial in ensuring that millions of Americans have access to necessary healthcare services, especially those facing financial hardships.

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Social Security – $1.4 Trillion (21% of the Budget)

‍Social Security is a cornerstone of economic security for many Americans. In 2023, it provided:

• Retirement Benefits: Averaging $1,833 per month to 49.1 million retired workers.
• Additional Benefits: Supporting 2.7 million spouses and children of retired workers, 5.9 million surviving children and spouses of deceased workers, and 8.7 million disabled workers and their dependents.

Social Security plays a vital role in ensuring that retirees and their families have a reliable source of income.

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Defense – $820 Billion (13% of the Budget)

‍National defense remains a significant expenditure, accounting for 13% of the budget. This funding supports:

• Operations and Maintenance: Ensuring that military personnel have the resources they need.
• Procurement of Weapons: Investing in the equipment and technology necessary for defense.
• Research and Development: Innovating new technologies and strategies to maintain national security.

Defense spending is allocated to protect the nation and maintain global stability.

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Interest Payments and Federal Debt (10% of the Budget)

‍In addition to program spending, the government must manage its debt. By the end of fiscal year 2023, the net federal debt reached $23.7 trillion, resulting in $658 billion in interest payments. These payments reflect the cumulative debt over the nation’s history and account for about 10% of the budget.

Beyond the Big Four: Other Key Spending Areas

While health, Social Security, and defense are the largest budget items, several other important areas also receive substantial funding:

Economic Security Programs – $545 Billion (8%)

‍These programs provide vital support to individuals and families facing financial hardship, including:

• Earned Income Tax Credit (EITC) and Child Tax Credit (CTC): Assisting low- and moderate-income working families.
• Unemployment Insurance and Supplemental Security Income (SSI): Providing cash payments to eligible individuals and households.
• In-Kind Assistance Programs: Such as the Supplemental Nutrition Assistance Program (SNAP), school meals, low-income housing assistance, child care assistance, and help with home energy bills.

Economic security programs help millions of people stay above the poverty line and reduce disparities in poverty rates.

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Benefits for Veterans and Federal Retirees – $481 Billion (7%)

‍Supporting those who have served our country and retired federal employees is another important area of spending:

• Veteran Benefits: Including disability payments and specialized medical care for over 18 million veterans.
• Federal Retiree Benefits: Providing pensions and survivor benefits to 2.7 million federal civil service retirees.

These benefits honor the service and dedication of veterans and federal workers.

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Other Public Services – Remaining Budget

‍The remaining portion of the budget funds a variety of essential public services, such as:

• Education: Investing in schools and educational programs.
• Infrastructure: Maintaining roads, bridges, airports, and other critical infrastructure.
• Environmental Protection: Preserving natural resources and promoting sustainability.
• Scientific and Medical Research: Advancing knowledge and innovation.
• Justice and Law Enforcement: Upholding laws and ensuring public safety.
• International Programs: A small portion (1%) supports humanitarian aid and the operation of U.S. embassies and consulates abroad.

It’s noteworthy to mention that a very small percentage of an individual’s tax dollars go to the “other public services” mentioned above. It’s often assumed to be quite a bit higher than in reality. 

What Does This Mean for My Tax Dollars?

Generally, most of the percentages will be similar across various income levels, with the exception of Social Security. Social Security is taxed at 6.2% for everyone until you make over $168,800 (for 2024). If you make $250,000 a year, you’ll hit that Social Security max and end up paying about 4% of your total income towards SS benefits. The more you make, the smaller percentage of your income goes to Social Security. 

For an individual making $100,000 per year, they would have paid the following amounts towards various programs during 2023:

• Social Security: $6,200 
• Medicare/health: $5,728 
• National defense: $4,390 
• Interest: $2,668 
• Economic security programs: $1,196 
• General government & veteran benefits: $2,156
• Other: $1,870, including:some text
  • $40 per year to EPA
  • $80 for NASA
  • $94 for school lunches and nutrition

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Balancing Costs and Benefits

Understanding federal spending involves weighing the costs against the benefits these programs provide, and voting according to your values. While taxes fund these expenditures, the value derived from public services and investments—such as healthcare, security, and economic support—plays an essential role in enhancing the quality of life for millions of Americans.

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Final Thoughts

Federal spending is a complex but vital aspect of how our nation operates and supports its citizens. By breaking down the budget into its various components, we can better appreciate the investments made in health, security, and economic well-being, make more informed voting decisions, and can better understand our personal financial situations & allocation of tax dollars. 

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Sources

Fiscal Data explains federal spending. Federal Spending | U.S. Treasury Fiscal Data. (n.d.). https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/ 

The federal budget in fiscal year 2023: An infographic. Congressional Budget Office. (2024, March 5). https://www.cbo.gov/publication/59727 

USAspending.gov. (n.d.). https://www.usaspending.gov/explorer/budget_function 

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