How American Taxes Are Spent

April 15, 2014

All rhetoric aside, it is helpful to understand where our tax dollars are being spent.

Most physicians have a love-hate relationship with tax day; loving that it's finally over and hating what they paid and how hard it was to earn it. We've shared many previous discussions about physician's taxation, tax scams targeting doctors, and even commonly overlooked deductions. Today we take a look at some interesting facts about our American tax system and how that tax money is actually spent. For those of you that have an interest in the details of how our country's money is collected, and from where, the Internal Revenue Service publishes an amazingly detailed report every year called a "data book" that provides easily readable charts depicting many stats.

How much does the government collect in taxes?

According to official IRS reporting for fiscal year 2012, the IRS collected almost $2.5 trillion in federal revenue and processed 237 million tax returns, of which almost 145 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 81 percent were e-filed. More than 120 million individual income tax return filers received a tax refund, which totaled almost $322.7 billion. On average, the IRS spent 48 cents to collect $100 in tax revenue during the fiscal year, the lowest cost since 2008.

The IRS examined (audited) just less than 1 percent of all tax returns filed and about 1 percent of all individual income tax returns during fiscal year 2012. Of the 1.5 million individual tax returns examined, nearly 54,000 resulted in additional refunds. California has the highest number of returns with refunds, while Wyoming is the lowest.

How is that money spent?

The Center on Budget and Policy Priorities (CBPP) published a fascinating one page summary of the United States 2013 budget allocation and spending, which amounted to just under $3.5 trillion.

The breakdown is surprisingly simple:

•About 19 percent of our annual budget or roughly $640 billion goes to defense spending;

•Another 24 percent, just over $800 billion, goes to Social Security;

•22 percent or just over $760 billion goes to Medicare, Medicaid, and the Children's Health Insurance Program (CHIP);

•12 percent or about $400 billion goes to safety net programs; and

•6 percent or $220 Billion is the cost of servicing the debt on our national deficit.

If you're doing the math, you'll know we are still a few points off, those break down as follows: benefits for veteran and federal employees is about 8 percent, we spend about 3 percent on infrastructure, 1 percent on education (that explains a lot), 2 percent on science and medical research, 1 percent on "non-security international" needs, and 3 percent (just over $100 billion*) on "other."

We realize many tangible benefits of taxation every day that are easy to take for granted and we've previously examined some of the great things about doing business in this country that tax dollars at least partially help provide and protect. To quote the CBPP:

"While critics often decry 'government spending,' it is important to look beyond the rhetoric and determine whether the actual public services that government provides are valuable. To the extent that such services are worth paying for, the only way to do so is ultimately with tax revenue. Consequently, when thinking about the costs that taxes impose, it is essential to balance those costs against the benefits the nation receives from public services."

While reasonable people will certainly have different opinions on how much taxes should be and what they should be spent on, I hope this helped you understand where that money is currently going with your help.

*Based on budget of $3.5 trillion for 2013.