How Does the Government Distribute your Taxes?
We are obligated to allocate a portion of our income to federal taxes, often without knowing how that money is truly spent. Discover here where each dollar of your taxes ends up.
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Published 1 Feb 2024 – 10:40 AM EDT
For every 100 dollars you pay in federal taxes, laws stipulate that approximately 45 dollars are allocated to ensure basic rights programs such as health or Social Security checks.
Basic rights such as health or Social Security
Mainly discretionary expenses
Interests
on debt
on debt
Economic security programs
Benefits for veterans and federal retirees
Other
$45
$27
$10
$8
$8
$4
These funds represent the most significant portion of the federal budget, reaching nearly 3 trillion dollars in 2023. As mandatory expenses, they are guaranteed, and their allocation can only be changed by modifying laws.
This money is primarily allocated to the payment of pensions for over 49 million retirees in the United States and to health coverage for individuals aged 65 and older or those with serious health issues, as well as low-income families.
While the Social Security Administration and health programs like Medicare and Medicaid account for a significant portion of federal government spending, there are other mandatory expenses as well as discretionary allocations authorized by Congress each fiscal year.
We've created this interactive tool to allow you to distribute money according to how you would spend it and to provide a detailed breakdown of where our tax payments ultimately go. To make it easier for you to visualize, we use a $100 bill, representing 100% of the federal budget.
How would you distribute these taxes among the following categories?
Move the slider and select the amount you want to allocate to each of the categories below:
TAXES TO PAY
$45
Social Security
Medicare, Medicaid, and other health programs
See the real distribution
Your choice
Real
Social Security
Medicare, Medicaid, and other health programs
$0
$24
Note that you have allocated 0% to what was actually assigned for the fiscal year 2023.
*The actual budget is the estimated federal allocation for the fiscal year 2023.
What expenditure does Congress establish?
Let's now turn to other expenses, most of which are discretionary*. These funds must be approved each year by Congress and the president through an appropriations process that often takes time and, at times, gets bogged down in political differences.
Mainly discretionary expenses
$27
(*) Categorization of discretionary expenses made in broad terms; some of the included categories encompass certain mandatory expenditures. For instance, the 'Education' category includes discretionary funds for school system grant programs, as well as mandatory funds allocated to federal student loans.
Education, transportation, medical research, agriculture, law enforcement, some social assistance, and especially defense are all discretionary expenses that are agreed upon each year in Washington.
How would you distribute these taxes among the following categories?
Move the slider and select the amount you want to allocate to each of the categories below:
TAXES TO PAY
$27
Defense
Education
Transportation
Natural resources and agriculture
Science and medical research
Law enforcement
International affairs
Other
See the real distribution
Your choice
Real
Defense
$0
$13
Education
$0
$4
Transportation
$0
$2
Natural resources and agriculture
$0
$1
Science and medical research
$0
$1
Law enforcement
$0
$1
International affairs
$0
$1
Other
$0
$4
Note that you have allocated 0% to what was actually assigned for the fiscal year 2023.
*The actual budget is the estimated federal allocation for the fiscal year 2023.
Among these expenses, defense usually takes the largest share: in fiscal year 2023, nearly half of the total discretionary spending was approved for defense. A total of 806 billion dollars were authorized, or almost 13 dollars out of the 100 dollars available for spending in our example.
A significant portion of that amount covered the operations of the Department of Defense: the military personnel of each Armed Force and the equipment they operate with.
However, the fact that it is a high discretionary expense when looking at the total figure sometimes makes the international aid component the focus of negotiations between Republicans and Democrats in the Capitol. This is what has happened with the war in Ukraine in the discussions on the budget for fiscal year 2024, where conservative Republicans have rejected providing more money to Kyiv unless Democrats agree to tighten security at U.S. borders .
The Ukraine factor has entered this battle even though the amount spent since Russia initiated the war in 2022—about 75 billion dollars, according to data from the German research institute Kiel Institute for the World Economy—and what President Joe Biden requested in his budget plan for 2024—around 61 billion dollars—represent less than 10% of the overall defense budget of the United States (in our example with the 2023 budget, it would be just over 1 dollar out of the total budget of 100 dollars).
“While these funds represent a substantial increase for these activities in percentage terms, they do not represent a significant increase in the context of the overall budget size,” explains an analysis by the Peter G. Peterson Foundation.
The weight of the debt
A mandatory and crucial expense for the U.S. economy is its debt and the interest owed to those who buy Treasury bonds. The burden of these bonds is so significant that the stability of global debt markets depends on them.
Interest on debt
$10
A default would unleash a cascade of disastrous repercussions for both the local and global economies. That's why the congressional battle to raise or temporarily suspend the country's debt ceiling had many on edge in June 2023.
The United States receives less money than its federal government spends. Therefore, the country must incur debt—and have the funds to cover the interest generated by that debt—to fulfill a significant portion of vital commitments, ranging from Social Security checks to military veterans' pensions.
Approximately 10% of the entire federal budget in a fiscal year must be allocated to paying the interest on the debt. In our example, for fiscal year 2023, you would allocate around 10.5 dollars out of every 100 dollars to debt interest, a figure close to the 13 dollars assigned to defense and quite distant from the 4 dollars and 2 dollars allocated to education and transportation, respectively.
Other economic security programs
In addition to Social Security benefits and health insurance programs—such as Medicare, Medicaid, the Children's Health Insurance Program or CHIP, and marketplace insurances created by the Affordable Care Act or ACA—there are other economic security programs whose funds may come from both discretionary and mandatory expenditure categories.
Economic assistance programs
$8
“For example, the 'economic security programs' category includes discretionary housing assistance and mandatory unemployment benefits,”, explained Kiran Rachamallu to Univision News, a research assistant at the progressive Center on Budget and Policy Priorities.
With a percentage of 8%, or 8 dollars out of the 100 dollars in our example, from the fiscal year 2023 budget, these funds mostly help cover vital programs for low-income individuals. Some of the most well-known programs include the Supplemental Nutrition Assistance Program (SNAP), popularly known as food stamps, and refunds from the Internal Revenue Service (IRS) for child and work tax credits.
“These programs keep millions of people above the poverty line each year,” explains an analysis from the Center on Budget and Policy Priorities.
A similar percentage of 8% from the 'economic security programs' category in fiscal year 2023 was allocated to benefits for military veterans and federal government retirees. This amounts to another 8 dollars out of the 100 dollars in our example.
Benefits for veterans and federal retirees
$8
This is a frequently mentioned mandatory expenditure category, as nearly 90% of the benefits for the 18.5 million military veterans cover disability checks or medical care 'that is usually specialized to deal with the unique conditions associated with military service,' explains an analysis from the Center on Budget and Policy Priorities.
Was it easy for you to distribute the 100 dollars? Were you surprised by the way Congress allocates them each fiscal year, or would you change the allocation of some funds that, by law, must be spent on certain categories?
Social
Security
$24
Medicare, Medicaid and
other health programs
$21
$4
$13
Defense
Education
$2
Transportation
Natural resources and
agriculture; Science and medical
research; Law enforcement;
International affairs and other
$8
$10
Interest on debt
Economic assistance
programs
$8
Benefits for veterans
and federal retirees
$8
Social
Security
$24
Medicare, Medicaid and
other health programs
$21
$4
$13
Defense
Education
$2
Transportation
Natural resources and
agriculture; Science and medical
research; Law enforcement;
International affairs and other
$8
$10
Interest on debt
Economic assistance
programs
$8
Benefits for veterans
and federal retirees
$8
Interest
on debt
Social
Security
Medicare,
Medicaid
and other
health
programs
Defense
$13
$10
$24
Economic
assistance
programs
$21
$4
$2
$1
$1
$1
$1
$4
Education
Transportation
Natural resources and agriculture
Science and medical research
Law enforcement
International affairs
Other
$8
Benefits
for veterans
and federal
retirees
$8
Interest
on debt
Social
Security
Medicare,
Medicaid
and other health
programs
Defense
$13
$10
$24
Economic
assistance
programs
$21
$4
$2
$1
$1
$1
$1
$4
Education
Transportation
Natural resources and agriculture
Science and medical research
Law enforcement
International affairs
Other
$8
Benefits
for veterans
and federal
retirees
$8
The budget issue is sometimes overshadowed by political fights and threats of 'shutdowns' of some agencies if the federal government runs out of funds. However, it's good to understand where—dollar by dollar—the income we pay to the IRS every year ends up.
Source: Center on Budget and Policy Priorities (CBPP); U.S. Department of the Treasury; Congressional Research Service; U.S. Social Security Administration.
Note: Data based on the calculation performed by the Center on Budget and Policy Priorities (CBPP) using fiscal year 2023 expenditure data according to the most recent information published by the Congressional Budget Office on May 12, 2023. Percentages have been rounded to whole numbers for ease of visual understanding.
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Crédito: Univision