As policymakers and citizens weigh key decisions on how best to reduce budget deficits and shape our future federal government, it’s helpful to examine where the dollars that make up the budget come from and where they go. The Center recently issued two backgrounders that shed light on these topics.
The first explains what federal tax dollars pay for. Three major areas of spending each make up about one-fifth of the budget:defense and international security assistance; Social Security; and Medicare, Medicaid, and CHIP.Two other categories together account for another fifth of spending: safety net programs, including unemployment insurance, SNAP (formerly known as food stamps), and the refundable portion of the Earned Income Tax Credit and the Child Tax Credit; and interest on the national debt.The remaining fifth supports a variety of other public services (see chart).
The second backgrounder describes where our federal tax dollars come from. As the chart below shows, almost half of all federal revenue (47 percent) comes from individual income taxes. Another 36 percent comes from federal payroll taxes. Corporate income, excise, estate, and other taxes generate the rest of our federal tax dollars.