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Where Do All of Your Taxes Go?

Where Do All of Your Taxes Go?

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The federal government collected approximately $4.03 trillion in 2021. This revenue includes individual, payroll, and corporate taxes. Ordinarily, federal taxes apply to different types of income, for example, salaries, wages, bonuses, tips, commissions, and even investment earnings. 

Because federal taxes are progressive, the rate increases with your taxable income. And while you wonder how much of your paycheck goes into taxes, you might also ask, where do my taxes go?

Where Your Federal Tax Dollars Go

The government channels federal taxes into three major uses. They include:

1. Mandatory Spending

Congress legislates mandatory spending, usually for several years at once. Instead of budgeting procedures, mandatory spending adheres to existing laws. However, such expenditure isn’t part of the yearly appropriations.

Social Security

This is the federal budget’s largest single expenditure. The government introduced social security to support retirees over 65. Its main aim is to boost your earnings when you become disabled or retire. If you die before your eligibility for social security, the benefits go to your dependents.

Both workers and employers pay a 6.2% tax for social security. However, that’s not the case for self-employed individuals who pay the entire 12.4%. Per the Social Security Administration, the number of people aged 65 and above will multiply by 2035. This means social security revenues will only cover 75% of benefits. 

Major Health Programs

Mandatory spending funds different healthcare initiatives. The first one is Medicare, an insurance program that covers those over 65, younger disabled individuals, and dialysis patients. If you’re wondering how taxes are spent for Medicare, you contribute a 1.45% tax towards this program from all your earnings. This is in addition to an extra 0.9% tax on income above $200,000 or $250,000 for married people.

Another insurance program is Medicaid which covers pregnant women, children, people with disabilities, low-income, and elderly adults. Medicaid is a federal-state initiative. This means it’s managed by state governments within federal regulations.

Mandatory Veterans Benefits

Although some benefits fall under discretionary spending, veterans are entitled to mandatory assistance such as disability compensation, pensions, rehabilitation, job training, education, burial benefits, and housing.  

2. Discretionary Spending

While mandatory spending funds programs stipulated by law, discretionary spending might change every year since it’s not passed into law. Unless Congress provides funding through annual appropriations bills, discretionary spending won’t occur. As the name suggests, discretionary spending depends on Congress’s discretion. As such, Congress can increase or reduce how much they allocate to a project. Discretionary spending includes:

Defense and Security

Although the allocations change annually, the Homeland Security Agency and Department of Defense take up a huge chunk of discretionary spending. The money pays for military personnel, procurement, operation and maintenance, as well as research, development, and evaluation efforts.


Your tax dollars go a long way in funding medical research. For instance, discretionary spending finances the National Institutes of Health which is the country’s medical research agency. Some of the money also goes to public health bodies like the Food and Drug Administration and Centers for Disease Control and Prevention.


Your taxes fund the Department of Transportation by paying for infrastructures such as roads, airports, and bridges.

Veterans Assistance 

The Veterans Administration budget gets some of its funding from Congress’s discretionary funds. This money can go into medical care, the construction of Veterans Administration facilities, and IT services.

3. Interest on Debt

With the current federal debt at over $28 trillion, it makes sense why the government would use your taxes to repay its interest on loans. However, interest on debt isn’t static — it might change from year to year depending on the amount of debt and fluctuating interest rates.

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