Economic Intelligence

The Misconceptions About Where Our Tax Dollars Go

April 11, 2012 RSS Feed Print

Chad Stone is chief economist at the Center on Budget and Policy Priorities.

With tax day fast approaching, it's worth remembering why we collect taxes. It's to pay for things we want government to do.

Americans don't like government spending in the abstract; a Gallup poll shows that they think about half of all federal spending and over 40 percent of state spending is wasted. When it comes to specifics, however, most Americans oppose cuts in Social Security, Medicare, defense, education, and antipoverty programs while favoring cuts in foreign aid.

[Read the U.S. News debate: Given The Current Deficit Crisis, Should Foreign Aid Be Cut?]

These poll results show not only how schizophrenic Americans are about government spending, but also how little they know about where their taxes go. Those facts are laid out in two "policy basics" documents from the Center on Budget and Policy Priorities, one on where federal taxes go and one on where state taxes go.

At the federal level, most of the budget goes toward defense, Social Security, and major health programs, as the chart below shows. Programs that most Americans oppose cutting—Social Security, defense, education and Medicare (which accounts for almost two-thirds of the Medicare, Medicaid, and CHIP slice of the pie)—plus interest on the debt account for about three out of every five federal dollars. Only about 1 percent of the budget goes toward foreign aid. Knowing these facts, would Americans still think that more than half the federal budget is waste that could be cut away without seriously harming government programs they value?

The bulk of spending at the state level goes toward education and healthcare, as shown in the chart below. If Americans knew that, would they still think state spending could be slashed by over 40 percent without affecting state services they value?

Some grumbling about our tax bills is natural at this time of the year. But Americans might want to take a closer look at how their government actually spends their tax money and remember the observation of former Supreme Court Justice Oliver Wendell Holmes Jr., that "taxes are the price we pay for a civilized society."