Just pay the IRS? Here's how the government spends your money – The Fool Motley

Paying taxes is not fun, and with the end of the tax season, millions of people simply sent more money to the IRS than they really wanted to pay. If you have just written a big check to the federal government, you may want to know where your hard earned money is going.

Every year, the federal government gives the general public an idea of ​​how it spends the tax dollars it generates. With expenditures approaching $ 4 trillion in the last year for which government data is available, this money is going to you and millions of dollars that have just been sent to the treasury go to the realization of a large number different goals.

Source of the image: Getty Images.

Mathematics of government budgets

During the 2017 fiscal year of the federal government, the total amount of taxes collected was $ 3.32 billion. That was well under the $ 3.98 billion the government spent that year, leaving the treasury to borrow money to get the difference of $ 665 billion. Most of this money came from taxpayers, 40% from personal income tax and 29% from social security, health insurance, unemployment and other taxes generally collected through deductions. wage. Borrowings to cover the deficit accounted for 17% of total expenditures.

As you can see below, the government has spent this money primarily in three key areas, with five out of six dollars falling into these categories.

Image Source: Internal Revenue Service.

The largest category is social security, health insurance and other retirement programs. The federal government offers these programs to help provide income support to retired workers and persons with disabilities, as well as to provide medical care primarily to seniors. With more than 60 million people benefiting from social security and almost all people aged 65 and over qualifying for Medicare coverage, it is not surprising that the federal government spends both fifth of its budget to these programs.

Social programs are the second largest expenditure category of the federal government. The best-known programs in this category are the Medicaid Program for the Provision of Health Care to Low-Income Americans and the Supplemental Nutrition Assistance Program, which allows people with limited financial resources to access health care. money to buy food. The additional security program managed by the Social Security Administration is also included in this category because of its needs-based guidelines. Other similar programs provide temporary financial assistance to families in need and meet other social needs. A small portion of this money is spent on health research and public health programs, as well as on housing assistance, unemployment benefits and other social services.

Finally, the third expenditure is devoted to national defense. This includes not only the money needed to pay military salaries and the purchase or modernization of military equipment, but also the funding of benefits and services for veterans. In addition, military and economic assistance to foreign countries also falls into this category, as well as expenses related to the maintenance of embassies abroad.

The remaining 16% of the budget is distributed among a larger number of programs. About half of them go to agriculture, natural resources, the environment, transport, education, vocational training, science, banking, and so on. insurance, trade and real estate, as well as community development activities. Interest on the national debt requires 6% of total expenditure, leaving 2% for general government needs.

Challenges ahead

What is particularly worrying is that there is reason to believe that pressures on the federal budget will become even more pronounced in the coming years. A host of factors will contribute to this trend:

• The retirement of the baby boomer generation will result in increased benefits from social security and health insurance, which could deplete their respective trust funds.
• Rising interest rates could lead to a large increase in the amount needed to pay interest on the public debt.
• Health care spending has been growing at a faster pace than overall inflation for years and if this trend continues, Medicare and Medicaid will find themselves in an even more difficult situation.

As a taxpayer, you have no say in how the federal government spends the taxes you pay. But the more you know about government spending, the easier it will be to use your rights as an American to pursue sound fiscal policies for you and the general public.