Just the Basics: Where Our Federal Tax Dollars Go

April 7, 2014 at 2:59 pm

As Tax Day approaches, we’ve updated several backgrounders that explain how the federal government and states collect and spend our tax dollars.  As policymakers and citizens weigh key decisions on how best to shape our future federal government, it’s helpful to examine where the dollars that comprise the budget come from and where they go.

The first of our revised “Policy Basics” backgrounders explains what federal taxes pay for.  In fiscal year 2013, the federal government spent $3.5 trillion — 21 percent of the nation’s gross domestic product — on the critical services it provides, such as national defense, health care programs like Medicare and Medicaid, Social Security benefits for the elderly and disabled, and investments in infrastructure and education, in addition to interest on the debt.

As the chart shows, three major areas of spending each make up about one-fifth of the budget:  defense and international security assistance; Social Security; and Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

Together, two other categories account for another fifth of spending:  the first is safety net programs, including critical programs like unemployment insurance and SNAP (formerly known as food stamps), which protect people through difficult financial times, and the refundable portion of the Earned Income Tax Credit and the Child Tax Credit, which lift millions of people out of poverty each year; and the second is interest on the national debt.  The remaining fifth supports a variety of other public services (see chart).

Click here to read the full paper, which gives more detail about what’s in each of these categories of spending.

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More About Chye-Ching Huang

Chye-Ching Huang

Chye-Ching Huang is a tax policy analyst with the Center’s Federal Fiscal Policy Team, where she focuses on the fiscal and economic effects of federal tax policy. You can follow her on Twitter @dashching.

Full bio | Blog Archive | Research archive at CBPP.org

2 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Matt #

    It would be interesting to see where our income tax dollar, separate from our fica and futa and medicare tax dollars, go, since the latter three are more or less self funding. Do you know of such a breadkown?

    • Chye-Ching Huang #

      In this Policy Basics we take a unified look at the budget, which means we include Social Security on the spending side and payroll taxes on the revenue side.

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