Tax Talk- 5 Ways Your Tax Dollars Are Spent By the Government

Income tax is the main source of cash flow for the government, and it arrives via three categories: individual, payroll, and corporate income tax.  We all have to pay our share, but where does that money actually go? This is a question that generally pops up as you complete your individual tax return, and rightfully so! Read on to discover where your hard-earned dollars are spent. 

1. Healthcare

This is one area many people would love to have more funding. However, you may be surprised to learn just how much is spent on programs like Medicare, Medicaid, and other health programs and initiatives. In the 2019 financial year alone, the US government spent just shy of $1.2 trillion on healthcare.

2. Military spending

Controversial though it may be, the US government diverts many an income tax dollar to military spending. While money does go to international military programs, funding is also allocated to national defense and other security programs in the US. 

The Department of Defence receives most of the allocation of funds, and the money covers weapons research, training, operations, and the purchase and maintenance of equipment. The Transportation Security Administration and the Department of Homeland Security also receive taxpayer funding.

3. Social security & veteran’s benefits

According to the Social Security Association (SSA), more than a trillion dollars was spent on social security payments in 2021 alone. This money has to come from somewhere, and income tax is one of the biggest funding forces. These payments go to the elderly, people with disabilities, and the widows and orphans of deceased workers. 

America has more than 20 million veterans, and they too receive some benefits thanks to your income tax payments. You’re playing a part in funding their healthcare, pensions, education programs, and any disability payments to which they may be entitled.

4. The national debt

As of 2021, America’s national debt is sitting at an eye-watering $28 trillion. Even Jeffrey Bezos would have a nightmare on his hands with that level of debt. However, for a country, such debt is a natural part of managing the economy. This is why economists don’t consider the national debt in isolation. Instead, they measure it against the country’s gross domestic product (GDP) to arrive at something similar to the debt-to-income ratio many personal finance experts encourage us to look at in our own lives. 

So long as the debt-to-GDP ratio is below 77%, economists maintain confidence that things are in a relative state of balance. America hasn’t had a debt-to-GDP ratio that low since before the 2008 global financial crisis. The ratio has steadily grown to arrive at around 125% in 2021. During that time, events like the bank bailout, Brexit, and the pandemic have all driven up America’s debt-to-GDP ratio. However, your income tax dollars contribute to bringing it down.

5. Educational programs and initiatives

Your income taxes also go towards funding educational grants, student aid, work-study programs, elementary and secondary education programs, and other initiatives. If you own any residential or commercial real estate, a portion of the property taxes you pay likely also go toward funding public schools in your state. 
No one likes to pay taxes, but knowing where your money goes makes it a little easier to accept. When we know that our hard-earned dollars are going to worthwhile services like education, healthcare, and social security, we can feel like we’re invested in the government.