This Is Where Your Tax Dollars Actually Go
The federal government will bring in close to $3.98 trillion in tax revenue in 2023, according to Congressional Budget Office (CBO) projections. About half of that comes from individual income taxes and one-third comes from payroll taxes, which include Social Security and Medicare taxes.
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That's right, it's your tax dollars that keep the federal government running -- but where does it all go? To find out, GOBankingRates looked over CBO projections for 2023. The results show an increase in revenue of nearly $241 billion over 2022 -- but don't worry, the government will find ways to spend it all.
The Federal Budget
Federal spending is projected to be more than $5.1 trillion for fiscal year 2023, according to the CBO. With tax revenue expected to be less than $4 trillion, that means there will be a deficit of $1.12 trillion. The CBO projects a similar shortfall every year through 2030 -- the U.S. government is a textbook case of spending beyond one's means.
Gobbling up nearly one dollar in four, Social Security benefits are the biggest single expenditure in the federal budget. The U.S. is expected to pay out more than $1.27 trillion to the program in 2023 in the form of old-age, survivors and disability benefits.
Social Security is funded through a 6.2% payroll tax that workers pay and another 6.2% that employers pay. Self-employed people have to pay the full 12.4%. However, because the number of adults 65 and older is expected to increase dramatically by 2035, Social Security tax revenues will cover only about 75% of benefits, according to the Social Security Administration.
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The second-biggest mandatory spending outlay and the No. 2 budget expenditure, in general, is Medicare, which is expected to cost $1.01 trillion in 2023. This federal program provides health insurance coverage for adults 65 and older.
Medicare is funded by a payroll tax of 2.9% paid by employees and employers. Each pays 1.45% of an employee's income. It's also funded by general revenues and premiums paid by Medicare recipients.
CBO data show that the federal government is projected to spend $781 billion on defense in 2023. That's more than half of the combined $1.48 trillion set aside for federal discretionary spending.
About 10% of the federal budget goes toward Medicaid. In 2023, spending on this joint federal-state health insurance program for low-income people is expected to be $495 billion. Social Security, Medicare, and Medicaid form the bedrock of America's social safety net, but the federal government also funds the Children's Health Insurance Program (CHIP) for children of low-income families and health insurance premium subsidies for the Affordable Care Act. Combined, funding for these two health programs will be $70 billion in 2023.
Income Security Programs
In 2023, about $363 billion will be spent on income security programs like unemployment compensation, earned income tax credits, child nutrition programs and the Supplemental Nutrition Assistance Program (SNAP).
Federal Civilian and Military Retirement
Funding for retirement benefits for federal civilian workers and military members makes up less than 5% of the budget. The CBO projects that the federal government will spend $190 billion on these retirement benefits in 2023.
Veterans programs account for 2% of the federal budget. The government is expected to spend $141 billion in 2023 on compensation, pension, life insurance and other programs for veterans.
Agriculture and Other Programs
Less than 2% of the budget -- $104 billion in 2023 -- goes to agriculture programs, mortgage service providers Fannie Mae and Freddie Mac, deposit insurance, higher education, and other government services.
Interest on Debt
Last but not least, the U.S. has a lot of debt, and, yes, your tax dollars are going toward the repayment of this debt. At the end of 2019, the U.S. held about $16.8 trillion in debt, a number that had been slowly and steadily creeping up for years. By the end of 2020, however, slow and steady were things of the past. America's COVID-related borrowing and spending frenzy bumped that number up by nearly $3.5 trillion in a single year.
America started this year with $23.32 trillion in debt, and according to the CBO, federal debt as a percentage of GDP has now surpassed the previous peak, which occurred in 1946 following the massive deficits incurred during World War II.
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Cameron Huddleston contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: This Is Where Your Tax Dollars Actually Go