How does the federal government spend its money? (2024)

How does the federal government spend its money? (1)

Mandatory Spending

Mandatory spending covers outlays controlled by laws other than appropriations acts. Almost all such spending is for “entitlements,” for which expenditures depend on individual eligibility and participation; they are funded at whatever level needed to cover the resulting costs. Mandatory spending has grown from about 26 percent of the budget in 1962 to 66 percent in 2022 (figure 2). This growth is largely because of new entitlements, including Medicare and Medicaid (both of which started in 1965), the earned income tax credit (1975), and the child tax credit (1997). In addition, both increases in Social Security benefits during the 1960s and early 1970s and rapid growth of both the elderly and the disabled populations have contributed to increased Social Security and Medicare spending.

How does the federal government spend its money? (2)

Nearly half of mandatory spending in 2022 was for Social Security and other income support programs such as the Child Tax Credit, food and nutrition assistance, and federal employee benefits (figure 3). Most of the remainder paid for the two major government health programs, Medicare and Medicaid.

How does the federal government spend its money? (3)

Discretionary Spending

Discretionary spending covers programs that require appropriations by Congress. Unlike mandatory spending, both the programs and the authorized levels of spending require regular renewal by Congress. The share of the budget going for discretionary spending has fallen from two-thirds in 1962 to 26 percent now.

About 45 percent of FY 2022 discretionary spending went towards national defense, and most of the rest went for domestic programs, including transportation, education and training, veterans’ benefits, income security, and health care (figure 4). About 4 percent of discretionary spending funded international activities, such as foreign aid.

How does the federal government spend its money? (4)

Debt Service

Interest on the national debt has fluctuated over the past half century along with the size of the debt and interest rates. It climbed from 6.4 percent of total outlays in 1962 to over 15 percent in the mid-1990s, fell to 6 percent in 2015, but climbed back to 7.6 percent by 2022 (figure 2). Since 2016, historically low interest rates have held down interest payments despite the national debt reaching a peacetime high of 97 percent of GDP in 2022, in part due to the federal stimulus to tackle the COVID-19 pandemic. Overall, interest payments as a share of outlays are projected to rise because of projected increases in both the national debt and interest rates.

Updated January 2024

Data Sources

Congressional Budget Office. 2023. “Budget and Economic Outlook: Fiscal Years 2023 to 2033.” Washington, DC: Congressional Budget Office.

Office of Management and Budget. 2023. Historical Tables. Table 8.1, “Outlays by Budget Enforcement Act Category: 1962–2028,” Table 8.5, “Outlays for Mandatory and Related Programs: 1962–2028,” and Table 8.7, “Outlays for Discretionary Programs: 1962–2028.”

How does the federal government spend its money? (2024)


How does the federal government spend money? ›

The federal government funds a variety of programs and services that support the American public. The government also spends money on interest it has incurred on outstanding federal debt, including Treasury notes and bonds.

What does the federal government currently spend the most money on? ›

In 2023, major entitlement programs—Social Security, Medicare, Medicaid, Obamacare, and other health care programs—consumed 50 percent of all federal spending. Soon, this spending will be larger than the portion of spending for all other priorities (such as national defense) combined. What Funds the Federal Budget?

In which of the following ways do governments spend money? ›

Final answer: Governments spend money to meet public needs by protecting the public, providing health care, supporting education, and building roads and bridges.

How does the government spend more than it receives? ›

Try It. Each year the government runs a budget deficit, it finances the deficit by borrowing funds from U.S. citizens and foreigners. It does this by selling securities (Treasury bonds, notes, and bills)—in essence borrowing from the public and promising to repay with interest in the future.

What are the three types of spending for the federal government? ›

In 2023, federal spending is projected to total $6.1 trillion — almost one-fourth of the economy and $19,100 for each person living in the United States. That spending can be divided into three categories: mandatory, discretionary, and interest.

Who has the power to spend federal money? ›

The Spending Clause authorizes Congress to raise taxes and spend money “to pay the Debts and provide for the common Defence and the general Welfare of the United States.” These words cannot possibly justify the modern doctrine that the term “general welfare” authorizes Congress to spend money for virtually any purpose ...

What are the 3 largest components of federal government spending? ›

Components of federal government spending. CBO: U.S. Federal spending and revenue components for fiscal year 2023. Major expenditure categories are healthcare, Social Security, and defense; income and payroll taxes are the primary revenue sources.

What is the biggest government spending? ›

The 10 largest budget functions for 2023 are listed below.
  • Social Security ($1,354 billion). ...
  • Health ($889 billion). ...
  • Medicare ($848 billion). ...
  • National Defense ($820 billion). ...
  • Income Security ($775 billion). ...
  • Net Interest ($658 billion). ...
  • Veterans Benefits and Services ($302 billion). ...
  • Transportation ($126 billion).
Mar 21, 2024

Where does the federal government get most of the money it spends? ›

What are the sources of revenue for the federal government? Over half of federal revenue comes from individual income taxes, 9 percent from corporate income taxes, and another 30 percent from payroll taxes that fund social insurance programs (figure 1). The rest comes from a mix of sources.

What is government mandatory spending? ›

Mandatory spending is simply all spending that does not take place through appropriations legislation. Mandatory spending includes entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt. Mandatory spending accounts for about two-thirds of all federal spending.

How much money does the government waste? ›

WASHINGTON, D.C. – Today, U.S. Senator Rand Paul (R-KY), Ranking Member of the Senate Homeland Security and Governmental Affairs Committee, released his 2023 “Festivus” Report, totaling ~$900,000,000,000 in government waste.

Why do governments use money? ›

Fiscal policy is the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty.

What are the four main spending categories of the federal government? ›

The four main areas of federal spending are national defense, Social Security, healthcare, and interest payments, which together account for about 70% of all federal spending.

What country owns a large portion of US debt? ›

Japan is the largest holder of U.S. debt.

What do federal taxes pay for? ›

Taxes also fund programs and services that benefit only certain citizens, such as health, welfare, and social services; job training; schools; and parks. Article 1 of the United States Constitution grants the U.S. government the power to establish and collect taxes.

What are the three biggest expenses in the federal budget? ›

CBO: U.S. Federal spending and revenue components for fiscal year 2023. Major expenditure categories are healthcare, Social Security, and defense; income and payroll taxes are the primary revenue sources.

What does government spending do to the economy? ›

An increase in government expenditure, or a decrease in the tax rate, stimulates spending, output, and employment. However, once full employment has been achieved, the stimulative effect of the government deficit becomes inflationary.

Where does the federal government keep its money? ›

Treasury's operating cash is maintained in an account at the Federal Reserve Bank of New York and in Tax and Loan accounts at commercial banks. The Daily Treasury Statement (DTS) is available by 4:00 p.m. the following business day.

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