What Do Taxes Pay For?
What Do Taxes Pay For?
As you pay your taxes each year, you may wonder what do taxes pay for? How does the government spend your tax dollars? There are a variety of programs and categories that the government spends your tax money on, and it can vary slightly each year, but in general these categories benefit the economy and most citizens living within the United States.
Medicare, Medicaid, CHIP, and the ACA
Your federal taxes are also used to pay for federal healthcare programs, including Medicare, Medicaid, CHIP (the Children’s Health Insurance Program) and the ACA (Affordable Care Act). In 2022, these healthcare programs accounted for 25 percent of the budget according to the Center on Budget and Policy Priorities.
Social Security
Around 21 percent of the federal budget in 22, according to the Center on Budget and Policy Priorities, paid for Social Security. Social Security provides retirement benefits for workers and their spouses, surviving dependents, and disabled workers and their dependents.
United States Defense Programs
The US Defense programs are funded by US tax dollars and account for around 13 percent of the budget in 2022. Within the defense programs, your tax dollars pay for employees and research/development, weapons, operations, and other miscellaneous costs.
Federal Debt
A portion of your tax dollars pay for interest on the federal debt- around 7% of the budget in 2022.
Veteran Benefits
Around 7 percent of our federal budget is allocated to paying benefits for our veterans, which also includes benefits for federal employees or civil service employees.
Income Security Programs
Programs that provide for income security, such as housing assistance, SNAP (Supplemental Nutrition Assistance Program), school meals, etc. are a large category of programs that use federal funds to provide aid to those facing hardship. This category also includes tax credits funded by the government, such as the Earned Income Tax Credit or the Child Tax Credit. Your tax dollars pay for these programs, and it accounts for 11% of the federal budget in 2022.
Education
A portion of your federal tax dollars are spent on public education, around 3% of the federal budget is allocated to this category.
Other Categories
There are various small categories that take up less than 2% each of the federal budget, including law enforcement, research (both medical and science), transportation and infrastructure, agriculture and natural resources, international aid, and miscellaneous spending. These categories all have low percentages of the federal budget, but are areas where your federal tax money is being spent.
State and Local Taxes
So far, the above categories are solely referring to your federal tax dollars. The money that you pay in state and local taxes may be allocated in a different manner depending on the state and locality in which you reside.
In general, most states spend the majority of their tax money on health care and education. State taxes fund state healthcare programs such as CHIP and Medicaid. They also fund K-12 education programs in the state via grants, while local government generally funds the school programs directly. States do fund the majority of public higher education programs within the state.
States may also use your state tax dollars to fund income assistance programs, state transportation programs, prisons and correction programs, public employee pension programs, local government aid, and other miscellaneous programs.
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