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).
What do you think federal government spends the most money on? ›
Redistribution Dominates Federal Spending
Some of the largest transfer programs are Social Security, Medicare, food stamps, and refundable tax credits. These programs do not add to gross domestic product (GDP) or national income but rather redistribute existing resources from taxpayers to program recipients.
What does the federal government spend the most of our tax money on group of answer choices? ›
The country's budget
The three biggest categories of expenditures are: Major health programs, such as Medicare and Medicaid. Social security. Defense and security.
How does the government spend more than it receives? ›
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.
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.
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.
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.
What occurs when the federal government spends more money than it takes in? ›
A deficit occurs when the federal government's spending exceeds its revenues. The federal government has spent $ more than it has collected in fiscal year (FY) , resulting in a national deficit.
What are the two main sources of income for the federal government? ›
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).
The top 10%, with incomes of at least $169,800, pay about three-quarters of the nation's tax bill, the analysis found. Although most Americans believe the middle class bears the heaviest tax burden, it's actually the top 1% who pay the highest federal tax rate, at 25.9%, the Tax Foundation analysis found.
What are the four sources of federal revenue? ›
The federal government collects revenue from a variety of sources, including individual income taxes, payroll taxes, corporate income taxes, and excise taxes.
What are the four main spending categories of the federal government? ›
The main areas of federal spending are national defense, Social Security, healthcare, and interest payments.
What makes up the federal budget? ›
The annual budget covers three spending areas: Mandatory spending - funding for Social Security, Medicare, veterans benefits, and other spending required by law. This typically uses over half of all funding. Discretionary spending - federal agency funding.
What do state governments spend the most on? ›
What do state and local governments spend money on? State and local governments spend most of their resources on education and health care programs. In 2021, about one-third of state and local spending went toward combined elementary and secondary education (21 percent) and higher education (8 percent).
What top three items do you think the government will spend tax dollars on in ten years? ›
Final answer: In ten years, the government is likely to spend tax dollars on healthcare, education, and infrastructure. The amount spent on each item will depend on various factors like budgetary constraints and public demand.
What do government purchases include spending on? ›
Government purchases range from spending on infrastructure projects and paying civil service and public service employees, to buying office software and equipment and maintaining public buildings. Transfer payments, which do not involve purchases, are not included in this category.
How much does the US government spend on healthcare? ›
How much does the federal government spend on health care? The federal government spent nearly $1.5 trillion on health care in fiscal year 2022. In addition, income tax expenditures for health care totaled $300 billion.
