Current U.S. Federal Government Spending

Where Does the Government's Money Go?

government spending
Doesn't he look happy to be spending your money?. Photo: Brand X Pictures/Getty Images

Current U.S. government spending is $4.268 trillion. That's the federal budget for fiscal year 2018 (October 1, 2017, to September 30, 2018).  It's 22 percent of economic output as measured by gross domestic product.  

Before the recession, the government kept Federal spending below 20 percent of GDP.  It grew no faster than the economy. That was around 3 percent per year. During the recession, spending grew to a record 24.3 percent of GDP in FY 2012.

The government spent more on economic stimulus and engaged in two overseas wars.

At the same time, growth slowed. That reduced tax receipts. Congress worried about the ballooning U.S. debt. No one could agree on how to reduce it. As a result, Congress enacted a 10 percent budget cut, called sequestration. That finally reduced spending to 20.7 percent of GDP in FY 2015. But after that, spending began creeping up again. It rose to $3.876 trillion in FY 2016, or 21.1 percent of GDP. 

Where Does the Money Go?

M​ost of the money goes to pay Social Security, Medicare and Medicaid benefits. These are part of mandatory spending. Those are programs established by prior Acts of Congress. The mandatory budget will cost $2.696 trillion in FY 2018. That's almost two-thirds of all U.S. government spending. It's skyrocketing because more baby boomers are reaching retirement age. By 2030, one in five Americans will be older than 65.

(Source: "The Older Population in the United States," U>S. Census, May 2010.)

Social Security costs the most at $1.003 trillion. Current payroll taxes provide $878 billion of income. Interest from the Social Security Trust Fund pays for the rest. But the costs will outpace income by 2030. That means Social Security benefits will drain the general fund.

It also means Congress can't "borrow" from the Social Security Trust Fund to pay for other federal programs.

Medicare ($592 billion) and Medicaid ($406 billion) are the next largest expenses. Medicare taxes pay for $268 billion of this cost. The rest comes from the general fund.

All other mandatory programs cost $695 billion. 

Interest Payments on the National Debt

Interest payments on the national debt are $329 billion for FY 2018. That's enough to pay for ten Justice Departments. It's also one of the fastest growing expenses. By 2026, it will more than double to $685 billion, becoming the second largest budget item after Social Security. It's not a mandatory program, but it must be paid to avoid a U.S. debt default. Interest rates are expected to rise.

If that happens, these estimates will also increase. (Source: "Mid-Session Review Fiscal Year 2017, Table S-5," July 15, 2016. Office of Management and Budget.)

Discretionary Spending 

The discretionary budget is $1.243 trillion. It pays for everything else. Congress decides how much to appropriate for these programs each year. That means it's the only government spending that Congress can cut.  

There is an additional fund for emergencies. Congress allocates this outside of the budget. For FY 2018, the emergency fund is $76.6 billion. The largest component is for Overseas Contingency Operations, which is for wars.

 

Once you include the OCO fund, then military spending is $824 billion. It's spread out among different agencies and budget categories, so you must add it all together. It includes:

  • Defense Department base budget: $574 billion.
  • Overseas Contingency Operations: $64.6 billion.
  • Departments that support defense: $173.5 billion. They include the Veterans Administration, State Department, Homeland Security, FBI and Cybersecurity, and the National Nuclear Security Administration.
  • Emergency funding for support departments: $12 billion

    The next largest department, Health and Human Services ($65.1 billion) is less than one-tenth of total military spending. Its primary function is to spend mandated benefits for Medicare, Medicaid and the Affordable Care Act. Other important federal government functions get even less funds. For more details, see Current Discretionary Spending

    Understand the Current Federal Budget