What do taxes pay for?

Professor of economics Mehmet S. Tosun looks at what taxes pay for, including a breakdown of the Nevada Executive Budget

Photo: Sharon McCutcheon

4/9/2018 | By: Mehmet Serkan Tosun |

"Taxes are what we pay for civilized society." Oliver Wendell Holmes, Jr., Former Supreme Court Justice

People want and expect public services from the government that range from more national services such as national defense, health care, social security, highways and national parks to more local ones such as public education, public safety (police and fire protection services), clean streets, and clean water. The problem starts when it comes to paying for those services that benefit everyone in the society in one way or another, directly or indirectly. While one may think voluntary contributions by residents could be a solution, there is no country in the world that has been able to provide wide-ranging public services without turning to a more formal and organized financing mechanism such as taxation.

Federal Government Outlays by Function in 2017 (from the Office of Management and Budget):

  • 24% Social Security
  • 15% Medicare
  • 15% National Defense
  • 13% Health Care
  • 13% Income Security
  • 7% Net Interest
  • 4% Education, Training, Employment and Social Services
  • 4% Veterans Benefits and Services
  • 3% Physical resources
  • 2% Other

Taxes at different levels of government pay for different government services. The breakdown of federal government outlays by function above shows composition of federal government payments for different government programs and services. Taxes paid to the federal government are largely used for Social Security and Medicare, which are two important federal programs that provide retirement and health benefits to elderly population. National defense, other health care related services and programs (including Medicaid), and income security (including food and housing assistance) are other important uses for federal tax payments.

Nevada Executive Budget (2017-2019, from General Fund Appropriations):

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  • 51% Education
  • 31% Health & Human Services
  • 9% Public Safety
  • 5% Elected officials
  • 2% Commerce & Industry
  • 1% Finance & industry
  • 1% Infrastructure

The breakdown of the Nevada Executive Budget above shows how taxes paid in Nevada are used. According to the 2017-19 Nevada Executive Budget, education is the single largest government program funded by Nevada taxes, making up 51% of the budget from General Fund Appropriations. This is followed by health and human services (31%), public safety (9%) and elected officials (5%).

Professor Mehmet S. Tosun, PhD

Dr. Tosun is a Professor of Economics and Chair of the Department of Economics at the University of Nevada, Reno. He is also the Barbara Smith Campbell Distinguished Professor of Nevada Tax Policy. Dr. Tosun received his Ph.D. in Economics from the Maxwell School at Syracuse University. His main research and teaching expertise is in public finance.


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