What Is Federal Income Tax Used For?
Allison Martin
Allison holds a Master of Accountancy (MAcc) degree and has experience in auditing, taxation, governmental accounting, and research administration. She also teaches money management and personal finance courses.
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Each year in April, grumbles from taxpayers about having to pay federal income taxes bounce through the walls of most American homes. Despite their annoyance, however, federal income taxes support many public agencies, utilities, and programs.
How Are the Funds Used?
Federal income taxes are used to pay for virtually anything under the sun. Each year, the federal government must fund billions of dollars worth of programs and does so through federal income taxes. It collects taxes and then disburses them according to the budget agreed upon by both chambers of Congress and the President.
Initiatives Supported
According to the 2014 Taxpayer Receipt, issued by the White House, federal income tax dollars were used to support the following initiatives:
| Initiative | Programs/Services |
| Healthcare | Medicare Supplementary Medical Insurance (including the prescription drug benefit) Medicaid Children's Health Insurance Program (CHIP) Food Safety and Disease Control |
| National Defense | Military personnel operations and procurement |
| Job and Family Security | Unemployment insurance Food assistance Tax credits Programs that facilitate income security |
| Net Interest | Interest on Treasury debt securities |
| Veteran's Benefits | Healthcare for veterans Disability compensation Pensions for veterans Education for veterans Home loans for veterans |
| Education and Job Training | Financial aid Special education Job training |
| Immigration, Law Enforcement, and Administration of Justice | Border patrol Immigration Enforcement Litigation Federal judiciary |
| International Affairs | Embassies Exchange activities Humanitarian aid |
| Natural Resources, Energy, and Environment | Water management Energy supply Pollution control |
| Science, Space, and Technology Programs | General science Basic research Space program |
| Agriculture | Agricultural research |
| Community, Area, and Regional Development | Community Development Fund |
| Response to Natural Disasters | Small Business Administration disaster loans |
| Additional Government Programs | Transportation |
Overall Federal spending
Total federal expenditures for 2015 were $3.7 trillion, reports the Center on Budget and Policy Priorities. Spending for 2015 breaks out as follows:
- Healthcare initiatives (including Medicaid, the Children's Health Insurance Program (CHIP), Medicare and Affordable Care Act subsidies) - 25 %
- Social security - 24%
- Defense/assistance for international security - 16%
- "Safety net" programs (including Earned Income Credit, SSI, food stamps, and other federal assistance for those with low incomes) - 10%
- Interest payments (on the National Debt) - 6%
- Benefits for federal retirees and veterans - 8%
- Education - 3%
- Infrastructure for transportation system - 2%
- Science/medical research - 2%
- Other - 4%
What Is Federal Income Tax?
The federal income tax is levied on any and all income earned by citizens in the United States. Citizens living abroad must pay taxes on their income, as well. The amount of the tax depends on the amount of income the taxpayer earned in the past year, increasing as their income increases. This is why the American tax system is referred to as a 'progressive tax,' in contrast to a 'flat tax' in which all taxpayers pay the same amount, regardless of income.
The total income tax is usually split evenly between employers and employees. Employers deduct a portion of the entire percentage of income taxes due from each paycheck. Self-employed and freelance workers are responsible for paying the entire amount of the tax quarterly.
Income Tax Controversy
Bring up the federal income tax if you want a conversation to become heated quite quickly. Perhaps few other issues create the kind of controversy that income taxes do. This is mainly because there is no specific provision in the Constitution stating that individuals have to pay tax on their income. What exists instead is a provision allowing the federal government to tax as it deems necessary to support itself or its programs provided that the taxed in individuals are represented. This is what "no taxation without representation" means.
Why Should I Pay Taxes?
While paying taxes is not fun, there is a legal obligation to do so. However, this is not the only reason to pay taxes. As pointed out on Reference.com, "taxes are vital to support the infrastructure that citizens rely on." From roads to national defense and more, taxes fund necessary programs that could otherwise not exist.
