Where does the money go? Understanding federal spending.

How much does the federal government spend each year? In 2015, the US government spent approximately $3.8 trillion dollars. This figure accounts only for federal spending – not state and local spending.

How does the US spend its money? The US federal government spends money on a lot of different things. But the bulk of government spending is focused on a few key areas – around 75% of spending goes towards only three areas: pensions and social security, healthcare, and defense/military.

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Break down federal spending in more detail. Federal spending categories are illustrated in this graph as a % of total federal spending. A more detailed breakdown of these spending categories can be found here. Healthcare accounts for the largest percentage of federal spending – of this, Medicare accounts $595 billion, or ~15% of total federal spending. Pensions account for 25% of spending, of which social security composes the largest component. Spending on military, defense, and veterans benefits accounts for 21%. The remaining 25% of spending goes to a combination of things, including welfare programs, interest payments, transportation, police and fire programs, and other government programs.

Where does all of this money come from? Taxes – mainly a combination of personal income, corporate, and payroll taxes. In 2015, federal taxes were estimated to bring in $3.2 billion; the difference between spending and revenue from taxes is the federal budget deficit. When spending exceeds revenue for multiple years, there is an increase in the national debt. Income tax, made permanent in 1913 with the 16th Amendment, account for ~50% of federal revenue. Employers also pay a tax on the salaries given to employees, termed a payroll tax. Unlike revenue from personal income tax and corporate tax, funds generated from the payroll tax can only be used for certain programs: mainly Medicare and Social Security.

federaltaxesHow much do we spend on welfare programs? The federal government spends ~$383 billion on programs such as housing assistance, unemployment benefits, food and nutrition assistance, and other forms of income security; spending on these programs accounts for less than 10% of total federal spending. Programs include SNAP (food stamps) at 2%, temporary assistance to needy families (<0.5%), foster care support (<0.2%), tax refunds due to the earned income tax credit, and a collection of programs with substantially less funding.