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.
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.
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.
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.”
FAQs
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).
How does the federal government spend the largest part of its money? ›
The largest federal transfer programs and the 2023 spending amounts are Social Security ($1.3 trillion), Medicare ($1.0 trillion), veterans' programs ($168 billion), refundable tax credits ($144 billion), and food stamps ($135 billion).
What do you think federal government spends 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.
How does the federal government get most of its money? ›
The majority of federal revenue comes from individual and corporate income taxes as well as social insurance taxes (such as the Social Security taxes described above).
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 top 3 federal expenditures? ›
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 general government spending? ›
Governments spend money to provide goods and services and redistribute income. Like government revenues, government expenditures reflect historical and current political decisions but are also highly sensitive to economic developments.
What is the highest 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).
How can the federal government spend more money than it takes in from taxes? ›
In most years, federal spending exceeds tax revenue and the resulting deficit is financed primarily through borrowing (see chart). Second, the President's budget lays out the administration's relative priorities for federal programs — how much should be spent on defense, agriculture, education, health, and other areas.
So, what should the government spend money on? Smith contends that only four expenditures meet his criteria: defense, justice, education, and infrastructure. (Shortform note: Smith does not include welfare for the poor among the important functions of government spending.
What is most tax money spent on by the federal government? ›
The three biggest categories of expenditures are: Major health programs, such as Medicare and Medicaid. Social security. Defense and security.
How does the US government spend its money? ›
The government buys a variety of products and services used to serve the public - everything from military aircraft, construction and highway maintenance equipment, buildings, and livestock, to research, education, and training. The chart below shows the top 10 categories and agencies for federal spending in FY .
Who pays the most taxes? ›
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes.
What are the two types of government spending? ›
There are two types of spending in the federal budget process: discretionary and mandatory.
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 is the federal 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.
Where does our federal tax money go? ›
Major Areas of U.S. Government Spending
Government Spending | Amount Paid Out of $1 Tax Dollar |
---|
🚑 Medicare | $0.14 |
⚔️ National Defense | $0.13 |
💰 Income Security | $0.13 |
📈 Net Interest | $0.11 |
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