What Are Your Taxes Really Paying For?

Nobody likes paying taxes, but most of us accept it as a necessary means to an end. Without our tax dollars, the government would be crippled -- we'd lose access to trillions of dollars of federal programs and operations.

That doesn't mean the government spends its money perfectly. In fact, any detailed reading of the federal budget is likely to uncover elements you don't like, no matter what your political persuasion. But does the good truly outweigh the bad? Are our tax dollars spent wisely enough? Let's dig into the details to see where your payments to the IRS are really going.

Obama's Budget for 2013 | Create infographics

This is the full proposed budget for the government's 2013 fiscal year. The White House submitted it early last year, and it may or may not be perfectly followed for the 2013 fiscal year, but it's likely to be a fairly accurate guide to where your money goes, category by category.

Some of your federal taxes will be taken out as payroll taxes, which go to pay for Social Security and Medicare. The amount you pay toward these programs will vary based on your income level, but for the purposes of simplicity we'll assume that "you" in this case barely make it into the top 25% of taxpayers, which requires a gross income of about $86,000. According to my calculations (you can see them in the preceding link), you'd pay roughly $7,500 in income taxes, net of all credits and adjustments, and roughly $6,000 in payroll taxes for social-insurance programs.

Whats Left After Taxes? | Create infographics

This isn't a perfect guide, of course. Higher earners will pay more, and low earners will pay less. But here's the breakdown for this particular taxpayer: Every $100 in adjusted income will result in a payment of about $15.68 in taxes. About $6.98 goes toward mandatory social insurance programs -- Social Security and Medicare -- and another $8.70 goes toward everything else. The social-insurance programs are a separate part of the federal budget, and although there are various proposals in the works to change how much they take in, there's not much we can do about it for now. But how are your tax dollars doled out for everything else? Let's assume that the federal budget  distributes tax dollars in an amount equal to its expense breakdown for everything outside of Social Security and Medicare/Medicaid, and take a look at where each $100 of your taxes goes:

What $100 in Taxes Pays For | Create infographics

Before we get to discretionary spending, let's look at these "other" mandatory-spending categories. Most of them are income security programs of various sorts, and much of the rest is made up of retirement benefits for government employees and former military personnel:

The Other Mandatory Costs | Infographics

Discretionary spending makes up the bulk of the rest. Defense is a huge chunk of that discretionary spending, as you've already seen, but where does the rest go?

Divvying Up Discretionary Costs | Create infographics

It can be tough to really assess where everything goes if you break it down piece by piece, so let's close this out with a look at all the places your money goes, all on the same graph:

$100 in Income Taxes Pays For ... | Infographics

That's a lot of different programs. Do you see any areas where the government's spending too much? How about places where it should spend more? No budget can satisfy all citizens, but there are sure to be areas where our elected leaders could tweak things for the better. Feel free to share your thoughts in the comments section on our complex and imperfect (but hopefully improving) government spending priorities.

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Read/Post Comments (12) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2013, at 4:02 PM, demitrix1 wrote:

    "your taxes", if you actually pay them...pay for every cent the United States Government spends and overspends.

    This article is pure crap.

    Why not spend more time about the "death of the PC" based off of Dell and HP's sells versus intel and amd's cpu sells?

  • Report this Comment On April 14, 2013, at 4:23 PM, aug99 wrote:

    Americas taxes are used to support the LAZY CLASS.

    We work so they can stay at home and watch oprah and the view.

    democrats do this for America.

  • Report this Comment On April 14, 2013, at 4:28 PM, fingerlakes54 wrote:

    As expected -Defense is the largest recurring item looking at any of the above charts. I have heard several times the USA spends more on defense than the 10 most armed countries combined. This must be a little embarrassing-because we must be paying too much for military hardware because we have so few military contractors or the weapons have continuing cost overruns. I don't know if the CIA expenses are included in this presentation but the cost of so many spies and their equipment, and the contracting out of information gathering might part of the mix. If we gave up the idea of "Empire" where we force folks to be on our side and just became a country of high ideas and hope like President Kennedy saw us we could slowly unwind the huge expense of getting others to do what we want. Most Americans are unaware of the strong arm tactics of our government to get the world to "tap dance" to our governments desires. Unlikely to happen but just a passing thought.

  • Report this Comment On April 14, 2013, at 5:10 PM, LadyMantle wrote:

    It would be nice to see the defense spending curtailed as I am sure it will be as we pull out of Afghanistan in the very near future. No one in the world wants war despite what the media is telling us. Even North Korea is not anxious to go to war or Iran. America loves war and we love to bully other nations. China and Russia will not take it from America and they will put us in our place if we start getting fool hardy with our weaponry.

    I'd like to think my tax dollars go to preserving our heritage and helping Americans instead of spending so much overseas. Too many of our aid dollars get siphoned by greedy foundations before they ever help the needy overseas. More oversight is needed of US tax dollars. There is way too much waste and theft through so called legitimate governmental bodies.

  • Report this Comment On April 14, 2013, at 5:13 PM, mandinka wrote:

    So much for the veracity of the study. DOD comprises 20% of the budget and has never been 30$ except in WW2.

    When all the heavy lifting that DOD does for State, HLA and NIH their share of the budget is 16%

  • Report this Comment On April 14, 2013, at 5:25 PM, wmslave wrote:

    The what's left chart is a lie. Th author didn't include mandatory, direct taxes on labor paid by your employer (matching SS, unemployment, etc). This is part of your pay. According to BLS this runs just over 8%.

  • Report this Comment On April 14, 2013, at 5:30 PM, woody3691 wrote:

    The net income fails to indicate state taxes. I understand this chart can't indicate each state tax and some states have no state taxes.

  • Report this Comment On April 14, 2013, at 5:59 PM, LinGreg wrote:

    Shouldn't "How the federal government spends $100 of your taxes" be "How the federal government spends $100 of your *Income* taxes"? The way it is now infers that this includes both income and payroll taxes -- it can be kinda confusing.

  • Report this Comment On April 14, 2013, at 6:01 PM, Harley117 wrote:

    Putting everything in a bucket helps to understand where the dollars go to a certain extent. However, there is about $300 billion of duplication and overlap of programs across the agencies. In addition, there are tons of money wasted on programs that don't add value. The federal government is the most inefficient, dysfunctional and wasteful institution that exists and Obama and the Democrats are hell bent on growing even more government.

  • Report this Comment On April 14, 2013, at 6:06 PM, TMFBiggles wrote:

    @ woody3691 -

    It would be monstrously complicated to break down state-by-state expenditures based on state-by-state income tax levels. I was just trying to keep it fairly straightforward here, but it's true that you almost certainly do pay more taxes than are indicated by the second pie chart. The net income level is simply a rough representation of what's left after you pay the IRS.

    @ LinGreg -

    I've fixed that, thanks for your suggestion.

    - Alex

  • Report this Comment On April 14, 2013, at 6:57 PM, marxwj wrote:

    What many don't realize is that defense spending also includes Veterans Benefits. If it a large part of the defense budget and growing fast. We not only have a lot of aging veterans, but many out on disability after a decade of war.

    Actual military spending is shrinking as a part of the Defense budget.

    For all those whining about government giveaways, I would like them to point them out on the bar chart and tell me how much of that goes to non-working adults, and not the ones on Social Security.

  • Report this Comment On April 15, 2013, at 5:16 PM, USAisaRepublic wrote:

    Ode to a government with enumerated powers and responsibilities! Wait a minute that's us.... hmmm...

    Can anyone tell me which of these is a constitutionally required expenditure? I count one for sure!

    Defense $31.97

    Unemployment Compensation $5.01

    Earned Income + Child Tax Credit $3.29

    Supplemental Nutrition Assistance Program $3.24

    Supplemental Security Income $2.23

    Other Income Security $3.24

    Civilian Government Retirement Benefits $3.75

    Federal Military Retirement Benefits $2.32

    Other Mandatory Programs $0.84

    Education $3.73

    Government Operations $3.73

    Housing and Community Programs $3.73

    Veterans' Benefits $6.10

    Health Programs $3.11

    International Affairs $2.49

    Energy and Environmental Programs $1.86

    Science and Research $1.86

    Labor Programs $1.24

    Transportation $1.24

    Food and Agriculture $0.62

    Interest on the National Debt 10.95

    Everything Else 3.44

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