Tyron Jones
Personal Finance Expert
Updated: 02/2022
Tyron Jones is a finance expert who has operated within the auto insurance business for more than 10 years. He has written many other finance related articles for a number of prominent publications.
Seeing a large chunk of your paycheck goes towards taxes might not feel the best. However, learning how the government spends that money could change how you feel. Most of those dollars get spent on programs that benefit you. Or, they're spent benefiting other Americans.
We can divide government spending into 3 separate categories. These would be mandatory spending, discretionary spending and debt servicing. Each of these categories provides a different set of benefits to the country. And, after looking at them closely, it's easy to see how they benefit the nation.
Mandatory Spending Programs
Mandatory spending programs could also be called entitlement programs. That's because these get their funding directly from your paycheck. So, you're entitled to their benefits. These tax dollars support programs like Social Security, Medicare and Medicaid. Plus, they'll even go towards certain programs supporting veterans.
What Does Mandatory Spending Mean?:
Mandatory spending gets its name because of how the budgets are set. Each year, the programs automatically receive their funding. In other words, Congress doesn't debate whether they'll receive funding. It's automatically done to ensure people get their benefits.
How Do These Programs Benefit You?:
Paying for mandatory spending programs supports a ton of Americans. If anyone in your family receives social security, that's because you're paying these. Also, these tax dollars support people without a ton of money who need healthcare. Plus, they're even spent to help out America's veterans.
Social Security
Social Security first became part of the government's budget during the 1930s. Back then, a ton of retirees were living in poverty. So, FDR developed the program to provide much-needed support to them. Today, it's the single largest item in the national budget.
Accounts for 39% of Mandatory Spending:
Each year, nearly half of mandatory spending goes towards the Social Security Administration. These tax dollars then get sent directly to other Americans. Usually, these are people who have been paying into the program for years. However, sometimes, these also support people who have disabilities.
Helps Support More Than 64 Million Americans Each Year:
Social Security injects a ton of money into the economy. Nearly 1/6 of Americans receive something from these programs. Then, they'll go out and spend those dollars in their local economies.
Paid for With a 6.2% Payroll Tax:
Anyone with a W2 can see how much they're spending on social security benefits. For most people, it's a total of 6.2% of each paycheck. There is a maximum payment amount, though. After you've made over $132,000, you don't spend anything else on these.
Medicare and Medicaid
Healthcare isn't always affordable for everyone. So, since the 60s, Medicare and Medicaid have helped a ton of people. If you've paid taxes, you've helped someone get healthcare thanks to these programs.
Medicare Parts A, B and D:
Medicare supports people over the age of 65. This government program makes sure they're able to afford to go to the hospital. And, these tax dollars also make it possible for them to afford prescriptions, too. Medicare gets its funding from a 1.45% payroll tax.
Medicaid Provides Affordable Health Care to Low-Income Earners:
If someone earns poverty-level wages, they can use Medicaid to afford a trip to the doctor. Not all of this program's funding is from your federal tax dollars, though. About 1/3 of it is funded through state governments.
Certain Veteran's Benefits
American veterans receive a ton of support from the federal government. Some of these benefits would be considered part of mandatory spending. However, not all of them are. The mandatory party tends to provide things like pensions and disability payments. Funding for these programs is partly from your earned income tax. And, another portion of it is from your taxes on capital gains.
Discretionary Spending Programs
In total, discretionary spending programs use about 1/3 of the nation's yearly budget. A lot of people wonder how discretionary spending differs from mandatory spending. Well, the biggest difference between them would be how the budgets are set. When it comes to discretionary programs, Congress debates how much is spent each year. They can decide to spend more or less if they'd like. Mandatory programs aren't up for debate.
Department of Defense
Believe it or not, the DOD is part of discretionary spending. So, our national defense programs must justify their existence each year. This money supports research and development, along with active conflicts.
National Defense Comprises Nearly Half of Discretionary Spending:
Compared to discretionary programs, defense eats up the largest portion of discretionary spending. Last year, it took up 48% of the total budget.
Transportation Programs
How often do you drive on roads? Unless you live in the country, you're probably using them every day. Driving wouldn't be possible without paying your taxes. In total, transportation programs use about 7% of discretionary spending.
Transportation Spending Supports National Infrastructure:
These tax dollars don't just pay for road maintenance, though. They're also spent on airplanes, trains and other transportation projects. Even bridges wouldn't get funded without these taxes.
Education Programs
Public education is one of the most important things in the country. Without your tax dollars, children wouldn't have access to quality education. However, some of this also goes towards student loans, too.
Discretionary Education Spending Supports Teacher's Salaries:
Have you ever felt like teachers deserve more pay? Well, these taxes are how they get their money. If you're supportive of teachers, then you should be proud to pay these.
More Veteran's Benefits
Another 6% of discretionary spending supports other veterans programs. When you see a new VA hospital, it was paid for by these taxes. This is also how the government pays for all those facilities' support staff.
44% of the VA's Budget Comes From Discretionary Spending:
Some of the VA's budget is created as part of mandatory spending. But, nearly half of its yearly budget is considered discretionary.
Health Programs and Agencies
National health programs are the last major portion of discretionary spending. These tax dollars help make sure it's possible for us to stay healthy. Several major agencies receive all of their budgets as part of discretionary spending. These include the CDC, FDA and NIH.
CDC:
The CDC helps to study the nation's health. They're the ones responsible for alerting us of developments such as pandemics. They're also active in the research community.
FDA:
Years ago, buying food from the store was a lot riskier. However, thanks to the FDA, we can eat without having to worry much today. The FDA regulates what's being sold at your local grocery store. And, they even make it so that food companies have to label what's in their food.
NIH:
The NIH pays for a lot of research in the health care community. Without their help, we wouldn't have such an advanced health care system. Funding from the NIH is one of the largest sources of medical research grants.
National Debt Servicing
Finally, the last way your tax dollars get spent is on the national debt. National debt accumulates interest each year. Without tax dollars, none of that would be paid. Overall, debt servicing comprises the smallest portion of the nation's yearly budget. Still, thanks to our large debt, it's pretty large overall.
About 8% of your tax dollars are used to service the national debt each year. And, that's only covering the interest payments. If you've ever heard people complain about the national debt, this is why. The more debt we accumulate, the more of our tax dollars get spent on this.
Why You Should Be Proud to Be an American Tax Payer
Of course, it would be nice to receive everything you've been paid. However, our tax dollars help support so much of what makes our country great. Paying taxes is what makes it possible to drive to work safely. Plus, every teacher you've had received their paycheck because of our taxes. Veterans get their benefits because of tax payments as well. Even research gets most of its funding from our tax dollars. As a result of people paying taxes, we get to live in one of the world's most productive economies. So, next time you see how much you've paid on taxes, think about what that really means.
The United States of America is almost 330 million people strong. We live spread out across a diverse slab of land stretching almost 3000 miles across, not counting our noncontiguous states and territories. Our armed forces are stationed on 662 bases in 38 foreign countries and on 19 aircraft carriers traversing the high seas. Why do we pay taxes? Because this stuff is expensive to maintain.
Taxes Pay For Things
How expensive? Try $4.79 trillion dollars in 2020 alone. And that’s just federal spending. It’s a sum of money we can’t even fathom – is there even that much cold hard cash in circulation? At that level the individual dollar, and even the individual million dollars, is a fleck of paint on the Sistine Chapel.
Yet it all has to come from somewhere – mainly the fruits of hard earned income harvested at tax time. Griping about paying the government their “fair” share of our wealth is a human experience as old as the pyramids – which were surely paid for courtesy of the Egyptian taxpayer.
Any one of us can scroll through the paper trail of government spending and point out an example of hundreds of thousands or even millions of tax dollars squandered on some seemingly fruitless endeavor. We can all think of a few choice government programs and services we’d like to see slashed or obliterated altogether. However getting Americans to agree on which expenditures are the waste and which spending should stay is no easy task.
The IRS
With all the billions upon billions of dollars being collected and spent every year we quickly take issue with the Internal Revenue Service when they chase after a few thousand dollars we may or may not have incorrectly reported. Can’t you guys pick on somebody else? But that’s a slippery slope. The reason so many people come running to a tax attorney or CPA is because nobody is immune from the hard scrutiny of government tax collectors. No stone is left unturned when the IRS comes around.
Most people don’t have a problem with paying taxes in and of themselves. It’s the prevailing belief we’re being taxed too much that drives most people batty when it’s time to send a check or two to Uncle Sam. Sure, we can agree that the interstate highways and FBI are necessary things to have around, but if we stopped providing welfare to couch potatoes or cut back on our military then I’d only have to pay half as much, right?
Makes sense, but who are we kidding? These sorts of sweeping slashes and changes to 
government spending would probably create new problems. Many of the couch potatoes forced to work would get a job, but many others would turn to the easiest way to make money: crime. The military would cut back, but then a decade later our more powerful enemies would surely find a new way to poke and provoke our interests overseas. The only agent capable of fixing these kinds of problems would be the government. How would they go about doing it? Who knows, but one thing's for certain: they’d raise taxes before getting started.
The Reality Of Taxes
We pay taxes because we have to. It’s the necessary evil of civilization. There will always be waste. Taxes will always go up more than they go down. We will always feel like we’re not getting our money’s worth from the system. But in the end it’s the price we pay. All things considered it’s a small price to pay for the benefits of living under the largest government in human history.
Readers, while certainly nobody enjoys paying taxes, do you think our current system and rates are where they should be?
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