Where Your Federal Income Tax Money Really Goes

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YOUR TAX DOLLARS AT WORK

The federal budget for fiscal year 2019 (Oct. 1, 2018-Sept. 30, 2019) is about $4.407 trillion, which requires quite a bit of borrowing considering tax revenue for the year is likely only $3.422 trillion. Almost exactly half of that $3.422 trillion comes from federal income taxes, about one-third comes from payroll taxes, 7 percent comes from corporate taxes, 3 percent comes from excise taxes (like the gas tax) and 5 percent comes from other miscellaneous taxes. All in all, that's a hefty chunk of change. 

To help put those numbers in perspective, we wanted to find out if someone were to pay a total of $1,000 in taxes this year (including Social Security and Medicare taxes), for example, where would it all go? Here's a breakdown of how your federal tax dollars are spent.

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A BRIEF HISTORY OF TAX REVENUE

Tax revenue tends to increase every year, thanks to inflation and population growth, but during the most recent recession starting in 2008, tax receipts actually decreased and didn't get back above 2007 numbers until 2013. The first year that tax revenue reached 13 figures was 1990, when the government collected $1.03 trillion. That's almost as much as the $1.1 trillion in tax revenue that the federal government collected between 1789-1959 combined.
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WHERE DOES IT ALL GO?

The vast majority, about two-thirds of the $4.407 trillion the government will spend this year, is earmarked for mandatory spending. That's made up mostly of big, expensive, legislatively mandated social programs like Medicare, Medicaid, and Social Security. Then there's discretionary spending, the part of the budget appropriated by Congress, which accounts for about 30 percent of federal spending. That's $300 out of the hypothetical $1,000 in tax money and pays for things like the military and the Department of Veterans Affairs (VA). Finally, about 8 percent of federal tax revenue goes to covering interest payments on the soaring national debt, which is the fastest-growing federal expense.

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SOCIAL SECURITY

No expenditure costs more than Social Security, which is paid for through payroll taxes as part of the government's mandatory spending obligations. The Social Security Act of 1935 guaranteed income to all retirees after their earning years have passed. A full $1.042 trillion is slated for Social Security spending in fiscal year 2019. That means about $240 of the $1,000 in tax money will go to Social Security.

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MEDICARE

The next biggest chunk of change goes to Medicare, another crucial part of the safety net that subsidizes the cost of health care for Americans over the age of 65. Medicare Part A covers hospital insurance, while Medicare Part B covers supplementary medical insurance. In fiscal year 2019, the tally for that expenditure comes out to about $629 billion. For an American who pays a total $1,000 in federal taxes, that's about $140 for Medicare.

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MEDICAID

The third major component of the country's social safety net and of the federal government's mandatory spending obligations is Medicaid, which provides access to health care for 66.3 million low-income Americans. Although the program is administered by the states, it's paid for with a combination of state and federal tax dollars. This year Medicaid spending will come in at $419 billion, or about $95 out of the $1,000 in tax money.

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MANDATORY SPENDING: BEYOND THE BIG 3

Once the three central safety net programs are paid for, the federal government still has about $669 billion in mandatory spending obligations. That's about $152 out of the $1,000 in tax money sent to the government. Most of this goes to income subsidization programs like housing assistance, child-tax credits, child nutrition programs and food stamps. Other mandatory spending includes things like unemployment benefits, disability and retirement payments for federal employees, the Affordable Care Act, and the Economic Stimulus Act of 2009.

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THE MILITARY

A little less than 1 dollar in 3 — $1.366 trillion — will go to discretionary spending, the only federal spending that Congress can raise or cut through appropriations. About half of this year's discretionary spending budget will go to military spending. That's $679 billion — or about $154 out of the $1,000 in tax money sent to D.C. — for the Department of Defense and defense-supporting departments and agencies like the VA, the State Department, the National Nuclear Security Administration, and the FBI.

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OTHER DISCRETIONARY SPENDING

Since roughly half of all discretionary spending goes to the military, the other half has to pay for everything else. That's a little less than $150 out of the hypothetical $1,000 in tax money sent to Washington. The biggest portion of that goes to America's biggest domestic agencies, including the Department of Health and Human Services, the Department of Education, the Department of Transportation and the Department of Housing and Urban Development.

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INTEREST ON THE NATIONAL DEBT

Roughly 8 percent of federal tax revenue, about $393 billion — $80 of the $1,000 — will be spent satisfying the interest accumulated on America's national debt, which grows every time the U.S. spends more than it generates in tax revenue. This year, that gap is about $1 trillion, and the total national debt is about $21 trillion.

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