When it comes to taxes, most of us just pay them and forget about it. If you're working for a company, chances are you don't even have to think about paying them because they're withheld from your income automatically.

Do you ever wonder where all this money goes? We have a general idea that it goes to pay for the government and indeed some of it does. But then what does the government do with it?   

Most of us don't have a clue. In fact, a recent Kaiser Family Foundation survey found that 40% of us thought foreign aid was one of the largest federal-budget expenses. Actually, foreign aid doesn't even make the top ten. In reality, for every dollar Washington spends on foreign aid, it spends $14 on Medicare, which according to some, is the second-largest expense, after Social Security.

Actually, it depends on how you view certain expenses as to how the government uses tax-payer money. In fact if you calculate the numbers a different way, the government actually spends more on defense than anything else. Unfortunately, there is no category called "defense” only a number of separate categories that could be construed as supporting the defense of our country either directly or indirectly. 

Clearer picture

To gives us a clearer picture of how our tax money is used a not-for-profit Washington-based group called Third Way has produced an itemized taxpayer receipt which the Wall Street Journal has graciously published. The list is limited and some off-budget items aren't included nor is a figure for our ever-growing national debt.

We're going to use the Third Way's receipt for the federal taxes of two couples that was published as a way to calculate percentages. That's because everyone's tax bill is unique. Even the two couples profiled pay very different taxes since one pair is retired so there isn't even an apples to apples comparison. Instead, I intend to use one couple's total income and payroll tax bill for the year as a base to which I will assign percentages for things like "defense””social security””medicare and medicade” as well as others.

So, here we go. For every tax dollar the government spends:

  • Defense and National Security ... 20%
  • Social Security .... 19%
  • Medicare and Medicaid ... 19%
  • Interest on National Debt ... 5%
  • Veterans Benefits, Health Care and Military Retirement ... 3%
  • Food Stamps ... 1%
  • Federal Highways ... 1%
  • National Institutes of Health ... less than 1%
  • Foreign Aid ... less than 1%
  • Housing subsidies for the poor ... less than 1%
  • Pell Grants for low-income college students ... less than 1%

The rest of the list, which accounts for about 30% is made up of a number of items, including the IRS, FBI, (CIA is included in Defense and National Security), NASA, Department of Energy, Federal Prisons, Agricultural subsidies, Head Start, Federal Emergency Management Agency (FEMA), Centers for Disease Control, National Parks and the Food and Drug Administration to name a few. As I said the list was incomplete, but at least now you have a better picture of how the government is spending you tax dollars.

To calculate the figure for Defense and National Security I added the expenses for military operations in Iraq and Afghanistan, military operations outside Iraq and Afghanistan, Military personnel, military weapon, military research and testing, CIA, Border Security, and Coast Guard.