How Does the Federal Government Spend Our Taxes?

Americans pay billions of dollars in taxes each year to the Federal government. However when it comes to knowing how the government spends the taxes collected many people have misconceptions.

From an recent article in The Wall Street Journal:

“A recent Kaiser Family Foundation survey found that 40% thought foreign aid was one of the two largest federal-budget expenses. In reality, Uncle Sam spends $14 on Medicare—itself the second-largest expense—for every dollar spent on foreign aid.”

The reality is that U.S. gives lower foreign aid than many other developed countries based on Gross National Income. In 2009, Sweden and Norway were the top donors. In addition, the majority of U.S. foreign aid went to countries such as Iraq, Afghanistan, etc. for political and strategic reasons.


The not-for-profit Washington-based group called Third Way has produced an itemized taxpayer receipt shown below for the federal taxes of two couples:

Click to enlarge


Assumption: “The couple with $200,000 income has two children, ages 13 and 17, with one spouse earning $150,000 and the other $50,000. The couple with $100,000 of income is retired, with no dependents.”

Other then Social security, Medicare and Medicaid and Interest on national debt are two items that the Federal taxes spends the most tax dollars on. The portion of taxes going to Interest on national debt item is so high because as of 11/9/2010, the outstanding US debt held by the public is 9,135,403,570,564.55 according to the U.S. Treasury Department. The U.S. is net debtor country. Hence billions of dollars are paid by tax payers each year as interest payments to debt holders. A huge chunk of these interest payments is paid to China as they are the largest creditor to the U.S.  Last year the government paid about $500 billions in interest alone. In 2008 interest payments amounted to about 9.6% of total tax revenue. In one way it can be considered that about 10% of all federal taxes paid goes to waste in the form of interest on money borrowed. Another way to look at this figure is that 10% of all hard-earned money paid as taxes to the U.S. government goes to unproductive purposes because years of reckless borrowing and spending created the enormous public debt.


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