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Where Tax Dollars are Spent

Updated for Tax Year 2020 / August 15, 2021 11:30 AM


OVERVIEW

Tax dollars are collected by the federal government and apportioned by Congress in the federal budget to fund various governmental programs.


Closeup of woman hands counting new 100 US dollar banknotes
Tax dollars are collected by the federal government and apportioned by Congress in the federal budget to fund various governmental programs. When the budget exceeds tax revenue, the government typically borrows money. A large part of the budget goes towards the same governmental programs every year, making the approximate percentage of the budget used on those programs easy to predict.

Defense

Approximately 20 percent of the federal budget is spent on defense and security. Most of that 20 percent is for the Department of Defense, which covers the cost of military operations, troop training, equipment, and weapons research. Defense and security spending also includes funding for the Department of Homeland Security and the Transportation Security Administration.

Social Security

Social Security accounts for roughly 20 percent of the budget. It provides benefits to workers who have paid into the system and have reached an established retirement age. Additionally, Social Security pays benefits to disabled workers who can no longer work or have limited income and resources. It also pays survivor benefits to the spouses and children of workers who have died.

Health care

Medicare, the Children’s Health Insurance Program (CHIP) and Medicaid account for another 20 percent of the federal budget. Almost two-thirds of the 20 percent is spent on Medicare. Medicare provides health coverage to qualifying people 65 and older, and to those with disabilities that leave them unable to work. The CHIP and Medicaid programs pay health care costs for those who meet low-income guidelines.

Public assistance and interest payments

Roughly 14 percent of the budget provides assistance to families and individuals in need. This includes refundable tax credits, Supplemental Security Income, Supplemental Nutritional Assistance Program (SNAP), low-income housing and school meals. Additionally, some of the tax money pays interest payments on the national debt, the money borrowed by the federal government to pay its expenses. In recent history, interest on the national debt has taken almost 10 percent of the annual budget.

The rest of the money

The remaining part of the budget provides for a variety of programs, such as benefits for retired veterans and federal employees, investments in scientific and medical research, international aid, and infrastructure such as federal roads and airports.

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