Thu, Dec 1, 2022

Where do your tax dollars go?

Elijah Keaton

Where do your tax dollars go?

As American taxpayers, it's important to understand where our hard-earned money is going when we pay our taxes. While it may seem like a daunting and complex topic, it's actually quite simple to understand once we break it down. In this article, we'll take a closer look at where your tax dollars go.

On November 10, 2022, the Government Accountability Office (GAO) released its result of the financial audit of the IRS for the business years 2021 and 2022. The overall report concludes that the IRS financials were reliable although some control improvements could be made.

2022 IRS collections of Federal Taxes

Analysis of the IRS’s 2022 financials reveals that they collected over $4.9 trillion in taxes, with $4.1 trillion of that coming from individual taxes, and the rest coming from corporate income tax and other various taxes. Internal revenue service information on 2022 federal tax collection

The report highlights that the IRS is significantly backlogged, with over 14 million tax returns received in 2022 still unprocessed and an average on-hold call time with the IRS in excess of 30 minutes.

So, where do your tax dollars go?

Your total Federal taxes pay for:

  1. Mandatory spending - The government spends about 70% of the taxes on mandatory spending like social security, Medicare, Medicaid, and veteran benefits and services.
  2. discretionary spending - Approximately 25% of tax money goes toward discretionary spendings, such as defense, education, health, and transportation.
  3. Interest on Government Debt - Every year, the federal government must pay interest on the national debt, which equals 5% of total tax collections.

How are the funds received from the Inflation Reduction Act (IRA) used?

Looking forward, the IRS plans on using the $80 billionit received from the Inflation Reduction Act (IRA) for two primary purposes:

  1. Better customer service
  2. Increased enforcement

What's the IRS's budget for taxpayer support?

The IRS increased its taxpayer support spending almost twofold, from approximately $3 billion to over $6 billion. In a message from the commissioner, he states the IRS intends to hire additional representatives and enforce mandatory overtime.

What's the tax enforcement budget?

The budget for enforcement increased dramatically, from just over $5 billion in 2021 to over $50 billion in 2022. This increased spending is intended to audit the ‘wealthiest’ Americans but many have shown concern that this could be affecting average Americans as well.

With an increased spending budget for tax enforcement, doing your taxes correctly is more important than ever. If you invest in stocks and crypto, be sure to try our newly launched tax tool that automatically notifies you of every tax-saving opportunity.