Death and taxes are certain, but so is government waste when it comes to spending your tax money. No matter your political beliefs, a lot of the tax monies raised by government is wasted. Governments around the world have different priorities which determine tax spend allocations. The allocations vary depending on the political party in power and their fiscal policies. Here we look at a few governments who disclose how they spend their residents and citizens tax money.

Where does the tax money go?

Around 50% of federal revenue results from individual income tax contributions, 36% from salary taxes funding social security services, and 7% from corporate taxes. The rest is derived from a combination of sources.

In 2019, taxes generated an income of 3.5 trillion dollars for the federal government, around 16.3% of the GDP (gross domestic product). Federal revenues in the last 50 years average 17.4% of GDP, from 20.0% in 2000 to 14.6% in 2009 and 2010.

Other revenue sources for the federal government includes revenues from customs duties, estate and gift taxes, various charges, and earnings from the Federal Reserve System. In 2019, these sources contributed 5% of the total federal revenue.

Expenditure

In 2019 the gross government budget was 4.4 trillion US dollars. Around 62 percent of the amount was non-regular budgetary review programs, also referred to as mandatory spending. About 30 percent included the discretionary programs that would regularly be approved by Congress. The remaining eight percent was allocated to catering for interest on government debt.

Compulsory expenditure requires expenditure controlled by regulations rather than acts of appropriation. Nearly all of these expenditures are for “entitlement” expenses which rely on individual eligibility and participation. They are subsidized to whatever degree is required to cover the costs that result thereof.

Compulsory investment rose in 2019 to 61% from roughly 31% in 1962. The new allowances include the Medicare and Medicaid (both begun in 1965), the income tax credit (1975), and the child tax credit (1997). Moreover, the rapid rise in Medicare and Social Security spending is due to an increased growth rate of seniors and disabled populations.

Medicare was introduced by the Social Security Administration (SSA) of the United States in 1966 and is primarily run by Medicare and Medicaid Service Centers (CMS). It is a health insurance program run nationally.

In 2019, nearly 60% of compulsory expenditure was for Social Security and other income support initiatives (see chart below). Much of the rest was allocated towards Medicare and Medicaid, the two main government welfare schemes.

Debt Service and Discretionary Spending

Global debt interest, along with the amount of debt and interest rates, fluctuated over the last half-century. It rose from 6.5% in 1962 to over 15% in the mid-90s and declined to 6.1% in 2015, but by 2019 it plunged to 8.4%. Despite the country’s national debt hitting an all-time peak of almost 80% of GDP in 2019, historically low-interest rates have kept the interest payments minimal. However, the predicted rise in both the national debt and interest rates is likely to increase interest costs as a share of outlays.

Discretionary disbursement requires Congressional approval. In contrast to mandatory expenses, Congress renewed all initiatives and approved amounts of expenditure. The percentile budget share for discretionary spending fell from about 66% down to the current approximation of about 30%.

Most of the discretionary expenses budget for the 2019 fiscal year was spent on national defence. Much of the remaining was spent on domestic projects, including travel, recruitment, veterans’ welfare, healthcare, and income security. Around 4% of the budgetary investment has financed overseas programs, for example, humanitarian assistance.

Besides defence and international security support {16% of the budget, an equivalent of 607 billion US dollars}, Medicare, Medicaid, CHIP (Children’s Health Insurance Program) {25% of the budget, an equivalent of 1.1 trillion US dollars}, and marketplace grants and social security {23% of the budget, an equivalent of 1 trillion US dollars}, there are two additional categories. These account for a mere 20% of the entire budget with safety net programs consuming 8%, an equivalent of 361 billion US dollars and debt interests taking up a similar 8%, amounting to 375 billion US dollars.

Safety net programs are responsible for the prevention of millions of people attaining the poverty status each year. These services prevent millions from reaching poverty status annually. A census study reveals that 37 million people were protected from suffering from hunger by the government’s defence network programmes during the 2018 calendar year. That year’s poverty rate would have been about twice the current 12.8 percent, without federal income assistance, either from safety net services or other income benefits such as Social Security. And for millions more, these programmes, even though they were not above the poverty line, lowered the extent of poverty.

Defense Spending in Detail

The budget finances five United States military branches: the Marine Corps, the Army, the Space Force, the Air Force, and the Navy. The Defense Department has roughly $732 billion US dollars of discretionary authority for 2020. The United States outspends the combined total of $726 billion, which comprises the defense expenditure of China, India, Russia, Saudi Arabia, France, Germany, United Kingdom, Japan, South Korea and Brazil.

Defense expenditure accounts for 15% of all federal expenses and nearly half of the discretionary budgets. For security and non-defense needs, gross government funding provides just about one-third of the annual federal budget. It is now below its historical gross domestic product level and is expected to decline somewhat.

In May 2019, the outgoing President Trump’s third budget summarized the government’s reform plans, fiscal estimates, and economic forecasts in the next decade. Although the budget will bring the deficit down under administration calculations, it relies on unexpected spending cuts and ambitious economic growth forecasts that significantly surpass those of most economists. With the new administration of the current President Joe Biden, things will likely take a different shift as he implements new methodologies.

Conclusion

This article has hopefully provided you insight into how the US government spends taxpayer money. Regardless of your political positions, government tax spending should be a concern of yours. You earn money, you pay the government your share of taxes, the government then spends this money. Government spending is essentially how a considerable portion of your money gets allocated to different areas. It is likely that given the increasingly proactive role of the Federal Government, that we will continue to see greater expenditure.