When we get our annual tax summary in the UK they give us a summary of where tax was spent, this page explains how they calculate it and there is a table of where the money was spent 2023-2024: https://www.gov.uk/government/publications/how-public-spending-was-calculated-in-your-tax-summary/how-public-spending-was-calculated-in-your-tax-summary
this post was submitted on 30 Dec 2025
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Money collected from taxes is basically recorded in a ledger / account by the Treasury. Some people look at this as the end of the lifespan of that money or the destruction of that money.
Money begins its life by being spent by the federal government. They essentially create money with the press of a keystroke (granted they are spending funds which are approved by Congress and allocated for projects), the money credits a Treasury account, then they transfer it / spend it which puts the money into circulation.
The federal government does not actually NEED the money you pay in taxes to fund their spending. Money does not come from people. It is created solely by the treasury. The federal government WANTS the money from taxes to approximately match the amount they put into circulation through spending in order to prevent runaway inflation. If they spend more than they collect they are adding to the supply of money which seems to be normal for a society with a growing population and successful marketplaces, but if they spend too much you get inflation.
The federal government believes that balancing is important. They want the amount of goods and services that America exports globally to match the amount America imports. Each year there is a deficit which means that America receives more goods and services than it exports. In order to balance this, the Treasury issues bonds equaling the amount of the year's trade deficit. We don't have to do this but we choose to because we believe it will create financial stability.
When the US issues bonds it collects money and gives a promise to make interest payments and to repay those bonds when they are due. Those bonds are debt. This is essentially how the government borrows money.
This is a fantastic article from the Bank of England which is like the US Treasury https://share.google/GmWpluu76vSJpuw5C
In the US, at least, the government has 2 ways it can fund itself.
Taxes, which are collected through a variety of means- income tax, for example, or import taxes, etc. these funds go into the treasury, which then get doled out to pay for things.
If taxes are insufficient, or there's some type of emergency that requires an excess of funds more quickly than they can levy with taxes... the government takes on debt. Specifically, they use a number of different instruments including bonds.
The "national debt" is the the sum of all those bonds, loans and whosiwhats its that are taken out to pay for things. it's the debt that the national government owes to others.
You're mostly correct, but I would like to add a piece that not everyone understands.
The government issuing debt can be good for the government because of inflation and economic stimulus.
When the government sells debt, it sells $ in the future for a different (usually lower) price today. It doesn't actually pay interest, the effective interest is determined by how much the market is willing to pay for it.
Lets say the government sells a billion dollars worth of bonds, which will pay out in 20 years, they sell it today for three quarters of a billion dollars. Sounds like a bad deal, right? The government is clearly losing a quarter of a billion dollars.
Except, the government doesn't have to pay it back with money from today, it pays it back with taxes it will earn 20 years from now. If in those 20 years, inflation is say... 3% on average. Lets just ignore compounding to make it simpler, and say the costs of everything goes up by 60% over those 20 years. Assuming the tax rate stays the same (and ignoring compounding effects) they'd be collecting 60% more actual dollars than they would today. Paying back a billion dollars from taxes at that point is now easier than it would have been to try to raise 750 million from taxes today.
The government just "made" money by borrowing money. Really, it comes from inflation eating away at wealth, which is why the government printing debt like this usually causes inflation. All things inflating equally is a wealth tax.
Side note: The current inflation issues we're seeing are not happening equally; wages are not going up as fast as inflation on common necessities like housing and groceries. That's a different problem, not caused by government debt printing.
Then there's the economic effects of spending the money now. More economic activity today usually means more taxes collected overall throughout the years that whatever they spent the money on benefits people. A new bridge or road, better air traffic systems to allow more flights, safer oceans to protect shipping, etc.
Why doesn't the US govt print USD to cover its deficit instead of borrowing?
Printing more money doesn’t make more value- it actually reduces the individual value of a dollar.
That value needs to come from somewhere.
When a currency is backed by some commodity (we backed by silver and gold, historically.) that value comes from whatever is backing it (ie you could go to a bank and get that stuff.)
Today, the dollar is backed by the confidence of the people using it. Specifically, the confidence in the US government. The value is also affected by supply and demand for that currency.
If the US suddenly decided to print the trillions dollar coin, the market reaction wouldn’t be all that hot. There is some wiggle room but generally not a lot.
If you want to know what happens when you push it too far, check out the Weimar Republic (Germany), Hungary after ww2 and Zimbabwe in the late 2000’s
It’s very much not-good.
80-90% of all USD that exists was printed during or after covid. I'm sure they can print gradually over time to cover excess budget deficit
The currency stabilised in early 1922, but then hyperinflation took off: the exchange value of the mark fell from 320 marks per dollar in mid 1922 to 7,400 marks per US dollar by December 1922. This hyperinflation continued into 1923, and by November 1923, one US dollar was worth 4,210,500,000,000 marks.
- History, hyperinflation in the Weimar Republic
Where do dollars come from? Is there any limit to how much money the government can create?
cash is largely minted by the government, and they usually aim to maintain "enough" (currently 2.3k billion dollars currently?)
Most of the money supply is not in physical cash, though- they call that the m1 supply which is found in things like savings and checking accounts, other kinds of deposit accounts, etc.
Currency is added to the economy by buying back government securities (think bonds). Specifically this is the Federal Reserve. we also pay interest on money held at by the Fed. (Banks invest the money.)