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How the government spends your taxes

As you sign this year's tax return, you're probably asking yourself: Just where does my money go when the government gets its hands on it? Alas, it's not a simple a question.
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If you haven’t already, you’ll soon sit down and sign your tax return — the annual accounting of what you owe the government. Like many tax filers, you're probably asking yourself: Just where does my money go when the government gets its hands on it?

Alas, it's not as simple a question as it may seem. For those of you who have trouble balancing your checkbook, imagine trying to keep track of where $4.1 trillion goes. That’s what was spent on your behalf at all levels of federal state and local government last year.

Even with armies of accountants and auditors, it’s hard to know with certainty exactly where your taxes ended up. For starters, you pay taxes based on a calendar year; the government spends it based on a fiscal year that begins Oct. 1. Even if the calendars matched up, the journey your tax dollars embark on depends a lot on things like how much you make, how you spend it and where you live.

Still, while the Bush administration tax cuts and the rise of the Alternative Minimum Tax have shifted the burden of who pays what, the size of the average tax bite on all of us hasn’t changed much, according to Gerald Prante, a senior economist Tax Foundation.

“The burden of government overall has remained relatively flat since 1970,” he said.

On average, about two-thirds of your taxes went to Uncle Sam last year and the rest went to your state, county or other local government, according to the folks down at the Commerce Department’s Bureau of Economic Analysis. (We'll use their numbers for this exercise.)

So where did your money go after you sent it off to Tax Heaven? One way to find out is to look at the government's bills. If the government sat down at the kitchen table to try to see where its paycheck went, here’s — very roughly — where it went in 2007.

To make the math a little easier, let’s assume the government made $52,000 a year — or $1,000 a week — which is about the median household income in the U.S. (The real number was $48,200 in 2006. And keep in mind that $1,000 a week doesn’t include taxes. But you’re the government — you don’t pay taxes.)

The biggest government bill last year was for a category called “income security” ($220 of that $1,000 weekly paycheck) — which includes Social Security ($115), along with other social services like welfare ($46), disability payments ($35) and unemployment  insurance ($7). The next biggest chunk went to pay for health care ($203), which includes Medicaid and Medicare.

Keeping our country — and your neighborhood — safe cost almost $200 a week, including national defense ($132), along with spending on “public order and safety” ($65), which included police ($27), prisons ($18), courts ($12) and fighting fires ($8).

Education took the next biggest slice ($158) — most of which went to pay for elementary and secondary schools ($117). Much of the rest helped pay for college ($28). About $2 a week of our $1,000 a week paycheck went to pay for public libraries.

Then there’s "general public service" — or the cost of government itself.  Unfortunately, government — like many Americans — has been living beyond its means and spending more than it collects in taxes. To make up the difference, state and federal treasuries filled in the gap by selling more debt — roughly the same as you or me using our credit cards. So the biggest single component of the $143 cost of running federal, state and local government last year was the interest on the money borrowed on your behalf ($90). Think of it as the minimum monthly payment on your government’s credit card.

The cost of running all levels of government also included salaries and expenses for the executive and legislative branches ($21) and the cost of collecting taxes ($11).

After that, the bills looked pretty manageable — but then you only had about $79 left. Those bills included highways ($25), agriculture ($8) air transport ($4), air and water quality ($7) and the space program ($3). Rounding out the list were housing and community service ($10) and recreation and culture ($7).

Like anyone paying the bills, you may be wondering: Did I get my money’s worth for the services I paid for? If you were a regular visitor to Yellowstone National Park, $7 a week is a bargain. But if you never once visited the Kennedy Center in Washington, you may be wondering: Why should I pay have to pay for that?

Some government programs are easier to value than others. A benefits check from the Social Security Administration has a pretty clear value. For other expenses, you need to consider what economists call the "positive externalities," according to Prante.

"People who don’t have kids in school still benefit from an educated populace," he said.

Like any family budget, government spending shifts from one category to another over time. In 1970, for example, health care made up roughly 8.3 percent of federal, state and local spending; last year it consumed more than 20 percent. Defense spending, which accounted for 27 cents of each tax dollar during the Vietnam War in 1970 fell to 11.1 percent of government spending by 2000, thanks to the "peace dividend" from the end of the Cold War. Since then, the cost of the Iraq war had pushed that back as of 2006 to 13.2 percent of all federal, state and local government spending.

Tallying the cost of the Iraq war raises one of the thorniest issues of the way the government accounts for your money. Depending on which agency is doing the accounting, you can find out how much has been authorized, how much has been actually spent and what the estimated total cost will be.

But simply accounting for where the money went last year doesn’t necessarily tell you how much you’re on the hook for future expenses.

"If you build a highway, you’re pretty much committed to maintain it and if a bridges collapses repairing it later," said Richard Kogan, senior fellow at The Center on Budget and Policy Priorities.

For a true accounting of your tax burden, you also need to consider the benefits you get from government for taxes you don’t pay. The deduction you get for the interest payment on your mortgage, for example is just as much a cost to the government as the Social Security check your grandfather gets. When you get a deduction, that cost gets shifted to people who don’t qualify for it. The tax code is riddled these with deductions, exemptions and credits that benefit everyone from college students to ethanol producers. 

"A person who looks at the pie chart of where the spending goes is going to miss the other ways in which we subsidize or incentivize other types of activity," said Kogan.

For the complete, gory details, you can statistics-geek-out at the Bureau of Economic Analysis' National Income and Product Accounts Tables, Section 3: Government Current Receipts and Expenditures. They’ve got government finances sliced and diced — by agency and function — all the way back to 1929.