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

FAQs

How does the federal government spend money? ›

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).

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).

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.

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).

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.

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 ...

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.

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.

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.

What should the government spend more money on? ›

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.

The three biggest categories of expenditures are: Major health programs, such as Medicare and Medicaid. Social security. Defense and security.

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 .

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.

There are two types of spending in the federal budget process: discretionary and mandatory.

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.

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.