What Does Tax Money Pay For?

This guest post comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.


I’m willing to bet that if you turned on CNBC, CNN or MSNBC right now, within 10 minutes you would hear someone talk about how taxpayer money is being wasted.  Well in order to understand if it’s being wasted you would first have to know where your money is supposed to be going, then decide whether or not the venture in question is worth the change of course.  Most Americans would be able to tell you that tax money pays for schools and roads and protection, but do you know just how much of your tax money goes to these liberties?

Assuming that an American pays $100 in federal taxes a week, which are directly drawn from their paycheck, this is how the government would spend each and every one of those dollars.


The biggest chunk of taxes is spent on a category called “Income Securities”.  While it sounds somewhat exotic, the majority of this category can be broken down into four well-known sub-categories.

  1. Social Security ($11.50) – Hopefully, I will be able to cash in on social security when I become of age but there are no guarantees.  At $11.50, it’s the second largest tax expense today.
  2. Welfare ($4.60) – Welfare is a taxpayer-funded program that provides assistance to taxpayers that can no longer support themselves.  A heavily abused program.  Roughly 5 million Americans receive welfare checks on a regular basis.
  3. Disability ($3.50) – Disability is a government program that assists those who are physically or mentally disabled and are unable to earn enough money to support themselves.
  4. Unemployment Insurance ($1.70) – With the unemployment rate as high as it’s ever been, unemployment insurance goes to fund just that, unemployment.  When the unemployment rate rises, so rises the percentage of your taxes that goes toward this service.
  • MEDICAL – $20.30

No offense to the older population, but you guys are just gobbling up the tax money, aren’t you?  Medicare is the main component of this category, which provides discounted care for anyone over the age of 65 or usually anyone with a disability.  Another service provided under this heading would be Medicaid, which provides healthcare to low and no income families.


A close third, the defense of the county is a heavy taxpayer bill.  If the country is not fighting or preparing to fight a war, you can expect this amount to be lower, but right now, the breakdown within defense is as follows:

  1. National Defense ($13.20) – As you can expect, the bill for national defense is the largest tax expense paid by the American public today.
  2. Police ($2.70) – Not as much money as you think would go to the nations police officers, but one of the most important and overlooked portions of your tax dollars at work.
  3. Prisons ($1.80) – Sadly, this number continues to increase each and every year as most prisons are grossly overpopulated.  The tax dollars going toward prisons may surpass the ones going to police officers very soon.
  4. Courts ($1.20) – Public defenders, judges, prosecutors and other legal occupations are classified under the courts category.
  5. Firefighters ($0.80) – Firefighters deserve twenty times this much, but for now they are on the low end of the tax totem pole.



  • EDUCATION – $15.80

Only ~16% of taxes are put toward education, and when budgets needs to be trimmed, the first place most politicians look is toward the education system.  There are two major components of education and one secondary component.

  1. Elementary and Secondary Schools ($11.70) – Grammar schools, elementary schools and high schools take up most of the funds.  Amazing that with that much money put toward education, there are still as many problems as there are.
  2. Public College ($2.80) – State Universities receive this portion of your taxes which helps reduce the annual cost of attending a public university.
  3. Libraries ($0.70) – With the Internet as popular as ever, public libraries continue to be shut down across the country.




You didn’t think all of those politicians worked for free did you?  Running the US government carries a hefty tax price tag.

  1. Borrowed Money ($9.00) – Because taxes never foot the entire government budget, borrowed money means interest payments.  Seems like such a waste of money to have 9% of our taxes pay for nothing more than interest.
  2. Legislative and Executive Branches ($2.10) – The President of the United States certainly makes a very meager salary, but when you consider all of the politicians in Washington, it adds up fast.
  3. Collecting Taxes ($1.10) – The main component here would be the IRS.  Weird to collect taxes that pay to collect taxes.  Defeats the purpose a little bit.




With the major areas already taken care of, there are still a few decent size tax programs that do not fall into one of the above categories.

  1. Roads ($2.50) – The government should probably set up a pot-hole tax program as well, because it seems every time I move, I find bigger and deeper potholes in the roads close to my home.
  2. Air and Water ($0.70) – The purification of air and water has become big business over the last 20+ years and the government is always looking for ways to keep things even cleaner.
  3. Public Parks ($0.70) – Conserving what’s left of the great outdoors is a high priority in my opinion, and I hope when I finally get around to traveling, all of the major parks are still around.
  4. Space Program ($0.30) – Every time NASA sends up a new $20 billion satellite, give yourself a pat on the back.

So there you have it.  The next time you pay your end of the year taxes or think that Uncle Sam is screwing you, you know exactly where your money is going.  The realization is that most of the above programs are very necessary to keep the US of A growing, and it’s really hard to dispute any of them.


  1. So…if we spent 9% less on interest payments…we could spend 9% /more/ on either social programs or tax reductions…

    How the hell did we get into this borrowing trap nationally? This is the only expense up there that bothers me.

  2. Great breakdown of the big numbers into a more digestible format!

    The fed. numbers, while I understand them, aren’t as easily comprehended when in the billions and trillions level. Break it down to $100, and I can sink my teeth into it!

    I was amazed that we spend $1.10 of every $100 dollars on collecting taxes!

    I’m sad to hear that public libraries are closing at such an alarming rate due to the internet!!! I think public libraries are great, and one of the better investments of our tax dollars!

  3. “No offense to the older population, but you guys are just gobbling up the tax money, aren’t you?”

    No offense? Clearly you DO have a problem with the elderly using this service. Gobbling up tax money? (Oh, but it’s OK for the govt to spend billions in Afghanistan, right?)

    FYI: If you pay taxes, you should be able to utilize the services you’ve been paying towards for as long as 50 or even 60 years.

    If we took all the money spent on wars (several hundred billion annually), we’d have no problem providing healthcare for people of any age.

    $13.20 for national defense? A really high number compared to other categories. Makes you wonder about America’s priorities, doesn’t it? But of course, no political party is fear mongering is it?

    “national defense”? some of us have a hard time with all our tax dollars being spent on wars we did NOT vote on.

    Billions of dollars to help people in other countries and you have have a problem with older people getting Medicare?


    A country that doesn’t take care of its own people first…says a lot about the country and its “elected” officials.

    And none of it is good.

    • So, what do you suggest? Maybe that we are all euthanized when we can no longer pay for war, welfare and government waste?
      We have all put in years and years of paying taxes and the attitude of younger people towards the older is so condescending and rude.
      Guess what, you will hopefully one day think back to when you were young and wish for the day where you could work and not have to struggle on a fixed income to survive. You will remember when you could get into a car and go food shopping or walk up a flight of stairs with no pain. Then maybe you will think about the callous comment you made here.
      The waste of our tax money should be what is really bothering you.

      • Waaaaaaaah I’m old waaaaaaaah I should have had a better job when I was young waaaaaaaaaaaaaaaaah :,(

  4. I’m not on Medicare yet but I am not comfortable calling them “you guys” – As humans, don’t we all share the human experience of life? We all get older, hopefully! If the people who are currently older than we are raised us, gave us values, and contributed to society, I’d like to honor them by at the least taking care of them when they’re at an age where working the daily grind is too difficult, as I hope one day I will be honored.

  5. I don’t complain about what my tax dollars are used for, I complain about waste. Due to some inherent inefficiencies in the different programs, we are paying more per person than we need to.

    Just because the numbers look small, think about how much smaller they’d be if simple things were done to be less wasteful (like digitalizing paperwork). Or really scare yourself by looking at the true amount of money these programs are using…not on a per person basis, but in total. It’s scary how much waste can be found in billion dollar programs.

  6. @Fun Stuff: That’s the way I feel. I agree with Michael’s closing sentiments that most, if not all, of these programs are worthwhile. However, it is the wasteful spending inside each of these programs that inflates the overall costs.

    @RU4Real: As for older generations “gobbling up tax money,” well, I suspect this may be a generational divide between young workers and older retirees. It is probably natural for younger people to be resentful of those benefiting from their hard-earned taxes because 1) young people have a hard time realizing they will be old one day too, and 2) it’s particularly hard to swallow when told you probably won’t receive those same benefits when you are of age.

  7. As someone in their late 20’s, Frugal Dad hit on my main problem with paying into social security. It’s hard to swallow when you know you won’t be getting the same benefits when you hit retirement age…

    I really don’t mind paying taxes to help out people who need it…I just wish I knew that I’d have a little help available when I get older too.

    I can only stomach it by thinking that my money is going directly to my grandparents…it’s a good visualization technique when I get bitter.

    I’m trying to find a way to swallow the fact that the current guys in the government are driving our debt so high that my generation will have to shoulder a gigantic tax burden while the guys who caused it are either dead or so old not to care…

    I try to combat that with a Roth IRA, but I worry they’ll change the rules on me mid-game.

  8. Great breakdown!

    Outside Gary, IN, there were a ton of billboards by officials looking to get elected talking about lowering your taxes. I want someone to stand up and say, we can’t lower your taxes, but we will work very hard to streamline the system and maximize the money coming in. Makes more sense to me. As a younger person, I don’t mind paying all that I do in taxes, I just wish I could trust the government to use it more wisely.

    • But in the long run…. what are WE going to do about any of it?

      The US will ALWAYS butt our noses in other countries where we have no business being, doesn’t matter if they have the best supplies in that country, what they do there is their business, as long as they don’t bring it here!

      The “people” will ALWAYS complain about the President, not matter who it is. Every election year it is always the same thing “this guys didn’t do what he said he was going to do”

      We NEED to take care of our own, our homeless, our drug problem, our toughest cities, our overpopulation, the people here in our country that take advantage of the system, our overpopulated prisions (I vote for the death penalty… if youa re convicted of the crimes and scentenced to Life or and over abundance odf years which equilates to Life, you get 4 years to prove your innocence and then you are euthanized, no more overpopulation!!


      (“the war at home”) …. its too radical and it will never happen. we are all jsut wasting our breath. The country will never change. There is nothing we can do about it, sit back and take it. But hey, it could be worse. We could live over there in that other opressed country.

  9. Great article! Especially the comment by Frugal Dad to RU4REAL.

    The younger generation DOES feel resentment that we pay thousands into a Social Security system that is broken. To us, it is just another tax that we will never see a benefit from unless someone does something about it soon. And the older generation and our government doesn’t care to do anything about it… Medicare/Medicaid may be around when we get older, but obviously rising health care costs may make them extinct by the time we’re eligible. On top of that, with a crippled economy, you will soon learn that the younger generation will take on the responsibility of caring for a large portion of our “older” generation. As companies have ceased providing “pension” benefits, and many reside on the success of our current markets.

    As for National Defense… lets just say I’m happy to pay the fine men and women serving our country. Perhaps if it weren’t for their protective services, we’d have less people to provide Medicare for… Be happy that you live in a safe environment. Give thanks for your military, police, and fire personnel. Those are all taxes well spent. Maybe you didn’t vote for a war, but that doesn’t mean that it’s affects won’t have a positive impact on the country that you live in… despite its high price tag. Perhaps if there were more countries out there that would work on the big picture, there wouldn’t be a “take care of your citizens first” mentality, but perhaps… a take care of the world mentality. Be happy that you live in a country that can think outside of its borders.

    I have a problem with the “Borrowed Money”, “Prisons”, and “Welfare” categories on this list. For one, we shouldn’t have this interest burden. For two, we’re too soft on our prisoners if we have an overrun system (reads, we should fix our laws and/or legal system), and third our welfare laws make it far too easy for people to take advantage of the system and abuse it.

    Personally, I would love to see more taxes spent on education. But that’s just me.

    Again, great article! Kudos Frugal Dad.

  10. Are there any Libertarians in here that think it is all a waste of money?

    I think education on a national level is a monumental waste of money. School decisions should be made at the local level, not national. End the Department of Education.

    Social Security is a scam. I am saving and investing for my own retirement and not relying on the government. Why couldn’t the Baby Boomers do the same?

    It is time to be self reliant and realize the role of government is not to be your safety net.

    • The Baby Boomers did invest in the future; then the junk-bonds collapsed. They tried again, and the tech bubble collapsed. They tried yet again, and the housing market collapsed. Does anybody see a trend, or is it just me? No I’m not a Boomer, but I’ve seen family and friends struggle through, and with, the loss of failed economics time and again. If you want to see a society of self-reliance go visit the third world.

    • Here here! Conclusion – the problem is not that the programs are bad, but that the funds are mismanaged and poorly delegated, and used to inflate the salaries of those delegating these resources. These funds should be collected and distributed at a community-based level, not a federal level, because that system is unfair. People should get what they pay for, locally – and also, the further it travels, the more money is wasted – just as energy resources are in cities with urban sprawl.

  11. Try reading The Government Racket: Washington Waste From A to Z and you’ll think a little more clearly.

    Education — a local function and the federal government has no business in it.

    Agriculture — did you know there are more people working in the Dept of Agriculture than there are farmers in the US?

    And then there’s the fraud aspect of it. Medicare fraud is rampant, government waste is ridiculous, and no one seems to care enough to work to make a difference.

    “A billion here and a billion there, pretty soon you’re talking some serious money.” — Senator Paul Tsongas

  12. Why are none of these functions or agencies not easy to “dispute”. Education Dept – didn’t exist until 1976 and billions have been spent w/ no progress on educational excellence in the US. The Energy Dept didn’t exist until 1976 billions spent to be energy independent and we import 3X the oil we did then. The IRS – change to a Flat or Fair tax and the IRS could be closed in a matter of months. This year the gov’t will borrow 50 cents for every 1 dollar spent – since this is a blog about frugality where is the commentary about how unsustainable that is. If I lived like that I would be bankrupt or deeply in hock very quickly.

    Wake up folks – we can change the gov’t and radically alter the spending. Return the principles this REPUBLIC was founded up – frugality, more responsibilities than rights, and freedom to succeed and fail without big brother being their to bail you out, provide cheap loans to those that can’t afford them, and to be involved in every aspect of our lives.

  13. jeff and ron – i’m all for abolishing the department of education. who do these people educate?? while we are at it, what about funding for the arts. really, unless you live near a big metro area, you never see art anyways. and let these people compete in the market place like the rest of us do. the list could go on and on.

    ru4real – side note, but defense of this country is a constitutional requirement unlike government cradle to grave welfare.

  14. I don’t recall the constitution mandating that the defense of our country be a bloated and largely unscrutinized mess. I spent 12 years in a uniform. You’d be largely surprised at the rush in September to spend everything on anything so you don’t “lose” the money next year(even if you don’t actually need the stuff you are ordering). Meanwhile we had retirees getting IOUs for their heart meds because that part of funding dried up earlier. Then there is all the money spent on bright shiny new toys that are used for a year or two before the brass wants something bright and shinier. There’s plenty of waste in the Defense budget but politicians will never address it because they are afraid to be labeled “soft on defense” though. It’s pathetic that I’m paying six figures to people who now largely name park benches because anything more difficult means a mud slinging and when they aren’t naming park benches then its even worse because the new government catch phrase appears to be “who could have imagined”(as in on Al Queda, Iraq, Bailout for banks).

  15. cwaltz- you are right about the waste in defense. it is like any other government bureaucracy. i guess i was just bringing up the fact that defense is actually in the constitution unlike everything else the government spends on. i spent 4 years at hurlburt field in the panhandle of florida and they actually died the dirt on the sides of the roads green once because some general was paying us a visit. i was 19 and horrified by the waste and everyone else was just like “who cares”

  16. How much of this money would be spent this way if you or I were spending it. When I buy something I want a good deal. No one wants to give Uncle Same a good deal because he is too hard to deal with.

  17. I’m confused. So I pay 7.65% in FICA, my employer pays 7.65% in FICA, and another 31.8% of what I pay in federal income taxes goes to the same Social Security and Medicare programs? Also, by “Disability”, are you referring to Social Security Disability or some other program? If you are referring to SSDI, then that’s another 3.5% of my federal income taxes going to the same exact program. I resent the fact that so much of my hard-earned income is going to our bloated government bureaucracy. I’d like to see a breakdown like this 10 years from now. That “borrowed money” category will probably double (or worse) with all the borrowing this administration plans to do (in addition to the borrowing that past administrations have done).

  18. If a large portion of the money spent on prisons is put toward education schools will improve.

    Better school will result in better educated graduates who will be able to support themselves without having to resort to crime.

    Over time this will lead to a decrease in the need for prisons.

  19. I have questionm about your numbers.
    There are Federal Income Taxes, and then there are Social Security and Medicare taxes. Is your figure of $22 / $100 of tax taken from the Federal Income tax by itself? Or from all the taxes put together? Am I paying $22 for Social Security out of my Income Tax IN ADDITION to the amount I pay for the other “social security” tax?

  20. Why are we paying to run motels for inmates. We pay for everything they get. Instead of putting them in a/c in the summer time and heat in the winter put them out in the weather. There are too many homeless people who would love to have a place to stay and three meals a day.
    I know several young men who have been to presion and when they got out know more ways to steal from people than they did before they went in. All presion is is a training ground to bread more criminals. Lets not forget there are a few politican in there also.
    Please invest my money in more housing for the homeless and less on criminals. Just one mans opinion.

  21. Ok – so our taxes buy services, roads, prisons, pay salaries etc. We don’t have a choice about where our money goes, whose salaries are paid and when and how much they’re increased. And most are taken out of our pay checks before we see them.
    ,,,and folks have a problem with mandatory healthcare?

  22. If just $1 was taken off all of the sub-categories, at $35,000 dollars a year gross, you would save just over $1,000 a year.

  23. This is for every $100/wk on average that you’re paying in. Then you figure in property tax, that pays for school stuff/ schools, roads, county officers, etc etc etc. Then you have the sales/service tax. Firefighters in my community are volunteer, that makes sense to me, how often do they actually go out and have to do something? Not very often here. They have 5 or more cops in the town of 1500 people I live near. They have 3 squad cars. The chief of police makes $40,000+/yr and drives the city squad car 25+miles/day one way to work that’s 50+ miles/day that doesn’t need to go on that car. The state college basketball and football head coaches make 1.2 million ea./yr and MN is one of the lower paid states. So yeah it maybe only $100 that is coming out of your paycheck but what about the other people in your state and in this country that are paying those taxes? IT ADDS UP!

  24. I did the math twice… Either you didn’t account for 7.1% of our tax money, or 7.1% of the money we pay in taxes goes to absolutely nothing…