How Are Federal Taxes Spent?

Updated for Tax Year 2020 • September 22, 2022 03:07 PM


All citizens must pay taxes.  How are these federal taxes being spent?

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The country's budget

All citizens must pay taxes, and by doing so, contribute their fair share to the health of the government and national economy.

The federal taxes you pay are used by the government to invest in technology and education, and to provide goods and services for the benefit of the American people.

The three biggest categories of expenditures are:

  • Major health programs, such as Medicare and Medicaid
  • Social security
  • Defense and security

Interest on the national debt and various safety net programs such as low-income assistance comprise a sizable chunk of national expenditures, while other categories such as transportation and infrastructure spending round out the government budget.

Defense and security

Defense and security typically constitutes a significant portion of government expenditures, although the amounts change annually along with the rest of the budget.

Defense and security spending is considered a discretionary portion of the federal budget. Spending in this category includes Department of Defense and Homeland Security Agency expenses.

For the fiscal 2019 budget, defense spending equaled about $697 billion, or approximately 16 percent of the federal budget.

Social Security

Payments for the Social Security system constituted about 23 percent of the federal budget in the 2019 fiscal year, with expenditures of about $1 trillion. The Social Security system provides retirement and survivors' benefits along with disability payments and is categorized as a mandatory portion of the federal budget.

Major health programs

The major health programs in the federal budget are Medicare, Medicaid and the Children's Health Insurance Program (CHIP).

About two-thirds of the federal health program budget goes to Medicare, as Medicaid and the CHIP require matching payments from individual states. For the 2019 budget year, about 25 percent of the federal budget goes towards these health programs.

Safety net programs

Safety net programs typically constitute about 9 percent of the federal budget. This category includes all aid programs for low- and mid-income families that are not a part of Social Security or the major health programs.

Examples include:

  • Unemployment insurance
  • Food stamps
  • Low-income housing assistance
  • Programs for abused and neglected children

Interest on the national debt

Interest on the national debt will total about $375 billion according to the 2019 federal budget, or about 8 percent of total expenditures.

Other expenditures

Approximately 19 percent of the federal budget goes into other categories of spending. The largest of these sub-categories, at about 7 percent of the budget, is spending on benefits for federal retirees and veterans.

Remaining expenses include scientific and medical research, transportation and infrastructure spending, education, non-security international spending and all other categories.

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