Tax Blog

I Pay My Taxes for That?

I Pay My Taxes for That?

There are many outrageous ways that tax dollars have been spent. Overpriced bus stops or outhouses in national parks, nonsensical research projects, and never-used software programs are just some of the wasteful expenditures that have been documented by government watchdog groups.

The sheer size of the US makes some government spending seem mind-boggling and outrageous. For example, the Pentagon estimated that exchanging zippers for buttons on their camouflage uniforms would save approximately $70 million over the course of a decade.

Outrageous expenditures and budget shortfalls make snappy headlines, and if those snappy headlines are all we consider, we may feel like paying taxes is pointless. As an antidote for cynicism, it is uplifting, every once in a while, to remind ourselves of the good things that would disappear without our taxes.

How does the federal government use our tax money? What are the government’s main expenditures?

The government’s primary expenditures include:

  • Three health programs: Medicare, Medicaid, Children’s Health Insurance (CHIP)
  • Social Security (payments to retired workers and their families, payments to the disabled)
  • National defense and security, not including veteran benefits

Additional major government expenditures include:

  •  Interest on the national debt
  • Social safety-net programs
  • Transportation and infrastructure

By sharing the tax burden throughout the population, all citizens contribute a share to the strength and functioning of the government and the national economy.

Major Health Programs

There are three major health programs in the federal government’s budget. These three programs combine to account for 25 percent of the federal budget. The three programs are Medicare, Medicaid, and CHIP (Children’s Health Insurance Program). Medicare is the national health insurance program for people who are 65 years or older or younger people with disabilities.

Medicaid is also a government health insurance program. Rather than targeting senior citizens or citizens with disabilities, Medicaid covers low-income adults of any age. CHIP, as the name implies, serves children.

Medicare is funded entirely by the federal government. Medicaid and CHIP, on the other hand, require matching funding from state governments. Medicaid and CHIP are administered by states. The majority of states have adopted the Medicaid and CHIP programs, but a minority of states have only limited involvement with the Medicaid and CHIP programs.

Safety net programs

Although safety net programs take up a lot of bandwidth in the media, they typically constitute less than 10 percent of the federal budget. This category includes programs designed to support low- and mid-income families who are in distress. Examples of safety net programs include unemployment insurance, low-income housing assistance, programs for at-risk children, food stamps, and Pell grants.

National defense and security

The Department of Defense and the Department of Homeland Security are the primary categories in this spending category.

The Department of Defense (DoD) is considered part of the executive branch of the federal government. The DOD supervises and coordinates many agencies, including the Army, Navy, Air Force, the National Security Agency (NSA), the Defense Intelligence Agency, the National Geospatial-Intelligence Agency, and the National Reconnaissance Office. It is the single largest employer in the world, with over 1.3 million active-duty service members as of 2020.

Like the DoD, the Department of Homeland Security (DHS) is part of the executive branch of the federal government. It is roughly comparable to the interior ministries of other countries. The Pentagon is the headquarters for the DoD. DHS headquarters are also located in Washington, D.C., at the St. Elizabeth’s West Campus. It employs roughly 250,000 people.

The DHS supervises and coordinates the following agencies: Citizenship and Immigration, Customs and Border Protection, Federal Emergency Management Agency (FEMA), Immigration and Customs Enforcement (ICE), Transportation Security Administration (TSA), Coast Guard, Cybersecurity and Infrastructure Security Agency, Secret Service, Federal Law Enforcement Training Center, Federal Protective Service, along with a constellation of smaller offices and directorates.

Interest on the National Debt

The federal debt held by the public is valued at more than $20 trillion. Intragovernmental holdings are usually included in the national debt, bringing the total closer to $30 trillion. Approximately 37% of this public debt is owed to foreigners. The rest of the national debt is on loan from American citizens. Individuals, corporations, the Federal Reserve, and foreign, state, and local governments all hold part of the national debt.

Debt held by the public as a share of GDP peaked just after WWII (113% of GDP in 1945). In subsequent years, the national debt as a percentage of GDP fell. However, the ratio of debt to GDP is on the rise again, totaling close to 100% of GDP in recent years.

The way tax dollars are spent is not always perfect, but the overall result is a country where we benefit from safety, security, and a social support program for those who may not be able to help themselves. Part of being a good US citizen is paying our fair share, but if you haven’t always done that and are trying to catch up, contact our tax resolution specialists. Life is far better when you are in the good graces of the IRS. Let us look at your situation and help you know how you can get rid of old tax debt and stop living in fear of the IRS.