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.
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).
Where is most federal money spent? ›
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 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 are the three main sources of funds for the US federal government? ›
Federal Budget 101
There are three major types of taxes: Income taxes paid by individuals. Payroll taxes paid by both workers and employers. Corporate income taxes paid by businesses.
What are the top three expenditures for the federal government? ›
The official source of government spending data
- $11.31 Billion. on Energy.
- $761.53 Billion. on Social Security.
- $738.06 Billion. on Medicare.
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.
How does the federal government spend taxpayer dollars? ›
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 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.
How do states spend federal money? ›
Conclusion. States rely on the federal government for a significant portion of their total annual revenues, which are typically used for healthcare, income security, education, and infrastructure.
