Where Your Tax Dollars Actually Go: A Breakdown of the Federal Budget

Ask someone how much of the federal budget goes to foreign aid. The most common answer in polls is somewhere around 25%. The actual number is under 1%.

Ask someone what the biggest single program in the federal government is. Most people guess the military. It is not. Social Security is larger by a wide margin.

These are not obscure details. They are the basic shape of where your money goes. And most people, including many of the politicians who argue about the budget on television, get them wrong.

Our companion piece on how the federal budget works explains the process: appropriations, reconciliation, shutdowns, and the debt ceiling. This piece is about the numbers. What does the government actually spend, where does the money come from, and what does a dollar of federal spending look like?

The Big Picture: $6.75 Trillion

The federal government spent approximately $6.75 trillion in fiscal year 2024. That fiscal year runs from October 2023 through September 2024.

That number is almost impossible to picture. Here is one way to think about it: the government spent roughly $18.5 billion per day. Or about $20,300 per person in the country. Or about $51,500 per household.

Federal revenue was about $4.92 trillion. The gap between what the government spent and what it collected was roughly $1.83 trillion. That gap is the deficit for the year, and it gets added to the national debt.

Now let us look at where those dollars actually went.

The Penny Breakdown

For every dollar the federal government spent in FY2024, here is roughly where it went:

That table tells you something that surprises most people: the three biggest categories are Social Security, interest on the debt, and Medicare/defense (essentially tied). The military, which dominates budget debates, is about 13 cents of every dollar. Social Security alone is nearly a quarter of all federal spending.

Mandatory Spending: The Autopilot Budget

About 65% of federal spending is mandatory. That means it happens automatically under existing law, with no annual vote by Congress. If you qualify for the program, you get the benefit. Congress does not decide each year how much to spend on these programs. The spending is driven by formulas and the number of eligible people.

Social Security (~$1.46 Trillion)

Social Security is the single largest program in the federal government. It provides retirement benefits to about 67 million people, along with disability benefits and survivor benefits. The average retirement benefit is roughly $1,900 per month.

Social Security is funded primarily through payroll taxes. Workers and employers each pay 6.2% of wages up to $168,600 (the 2024 cap). Self-employed workers pay both halves, 12.4% total. These taxes go into the Social Security trust funds, which currently hold about $2.7 trillion in Treasury securities. But the trust funds are drawing down because the program now pays out more each year than it collects. The Social Security trustees project the combined trust funds will be depleted around 2035, at which point incoming payroll taxes would cover only about 83% of scheduled benefits.

Medicare (~$870 Billion)

Medicare provides health insurance to about 67 million Americans, primarily people aged 65 and older, along with some younger people with disabilities. It has several parts: Part A covers hospital stays (funded by payroll taxes), Part B covers doctor visits and outpatient care (funded partly by premiums and partly by general revenue), and Part D covers prescription drugs.

Medicare costs have grown rapidly for decades because health care costs have grown rapidly. An aging population means more enrollees every year. This makes Medicare one of the biggest drivers of long-term federal spending growth.

Medicaid (~$620 Billion)

Medicaid provides health coverage to about 72 million low-income Americans, including children, pregnant women, elderly people in nursing homes, and people with disabilities. Unlike Medicare, Medicaid is jointly funded by the federal government and states. The federal share varies by state, ranging from 50% to about 77% of costs.

Medicaid is the largest source of health coverage in the country by enrollment. It also pays for about 40% of all long-term care in the U.S., including a large share of nursing home costs. When people talk about cutting Medicaid, a significant portion of the impact falls on elderly people in nursing facilities.

Other Mandatory Programs (~$520 Billion)

A collection of smaller programs that still add up to serious money:

• SNAP (food stamps): About $115 billion. Provides food assistance to roughly 42 million people.
• Veterans benefits: About $160 billion in mandatory benefits, including disability compensation and pensions (separate from VA health care, which is discretionary).
• Federal employee and military retirement: About $180 billion in pension and retirement benefits.
• Earned Income Tax Credit and Child Tax Credit: Refundable tax credits that function as spending, totaling roughly $100 billion.
• Unemployment insurance: Varies with economic conditions. Federal share is relatively small in normal times.
• Farm subsidies: About $30 billion, including crop insurance and commodity programs.

Net Interest: The Bill for Past Borrowing (~$882 Billion)

Interest on the national debt cost the government about $882 billion in FY2024. That is more than the entire defense budget. As recently as 2020, annual interest was about $345 billion. It has more than doubled in four years because the debt has grown and interest rates have risen sharply since 2022.

To put this in perspective: the government now spends more on interest than it does on everything it spends on children. More than education, nutrition programs, and child health care combined. And unlike almost every other budget category, interest spending produces nothing. No roads, no defense, no health care. It is simply the cost of past borrowing.

Interest is projected to keep growing. The Congressional Budget Office projects it will exceed $1 trillion annually within the next few years and could reach $1.7 trillion by 2034 under current policies.

Discretionary Spending: The Part Congress Actually Votes On (~25%)

Discretionary spending is the roughly 25-30% of the budget that Congress controls through annual appropriations. It is divided into twelve spending bills and split into two broad categories: defense and non-defense.

Defense (~$850 Billion)

The Department of Defense received about $850 billion in FY2024, making the U.S. military budget larger than the next ten countries combined. This covers:

• Military personnel pay and benefits: ~$180 billion
• Operations and maintenance: ~$310 billion
• Weapons procurement: ~$170 billion
• Research and development: ~$140 billion
• Military construction and other: ~$50 billion

Defense spending is large in absolute terms but has actually been shrinking as a share of the total budget for decades. In 1960, defense was about 50% of federal spending. Today it is about 13%. That shift happened not because defense was cut dramatically, but because mandatory spending, particularly health care, grew much faster.

Non-Defense Discretionary (~$920 Billion)

This is everything else Congress funds annually. It covers a huge range of government functions:

A few things stand out. Veterans Affairs is the largest non-defense discretionary item, reflecting the cost of providing health care to millions of veterans. Education, which people often assume is a huge federal expense, is relatively modest. Most education funding comes from state and local governments. The federal share is important but small compared to the total.

Foreign Aid: The Most Overestimated Budget Item

This deserves its own section because the gap between perception and reality is so wide.

Total U.S. foreign aid and international affairs spending is about $55-60 billion per year. That includes everything: diplomatic operations, embassy security, humanitarian aid, military assistance to allies, global health programs (like PEPFAR, the HIV/AIDS program), and development assistance.

That is less than 1% of the federal budget.

Polls consistently show that Americans believe foreign aid is between 10% and 25% of the budget. When asked what it should be, people typically say around 10%. The actual number is already far below what most people think it should be cut to.

To be concrete: the U.S. spent about $55 billion on all international programs in FY2024. It spent $882 billion on interest payments. It spent $1.46 trillion on Social Security. The idea that cutting foreign aid could meaningfully reduce the deficit is arithmetically wrong. Eliminating every dollar of foreign aid would cover roughly three weeks of interest payments on the debt.

Where the Money Comes From

Federal revenue in FY2024 was about $4.92 trillion. Here is the breakdown:

Individual income taxes and payroll taxes together account for roughly 84% of all federal revenue. If you receive a paycheck, you are personally funding the vast majority of the government through these two sources.

Corporate income taxes are a smaller share than many people assume. In the 1950s, corporate taxes made up about 30% of federal revenue. Today they are about 11%. That shift has happened through a combination of lower statutory rates, expanded deductions and credits, and the growth of pass-through businesses that pay taxes through the individual system instead.

Payroll taxes are notable because they are capped. Social Security taxes apply only to the first $168,600 of wages (2024). Someone earning $170,000 and someone earning $17 million pay the same dollar amount in Social Security taxes. This makes payroll taxes regressive, meaning they take a larger percentage of income from lower earners. Medicare taxes, by contrast, have no cap and include an additional 0.9% surtax on high earners.

Why the Budget Is So Hard to Change

Now you can see the fundamental math problem facing anyone who wants to "fix" the budget.

Mandatory spending is locked in. About 65% of the budget runs on autopilot. To change it, Congress has to rewrite the underlying laws. That means telling people they will get less from Social Security, Medicare, or Medicaid. Both parties have learned that voters punish anyone who touches these programs. Even proposing changes can end a political career.

Interest is non-negotiable. The government has to pay its creditors. You cannot cut interest spending without either paying down the debt (which requires surpluses) or defaulting (which would cause a global financial crisis).

Discretionary spending is already compressed. The remaining 25% of the budget covers the military, veterans' health care, federal law enforcement, scientific research, education, infrastructure, and diplomacy. Cutting any of these means cutting something with a dedicated constituency and tangible consequences. Cutting defense has national security implications. Cutting veterans' care is politically toxic. Cutting NIH funding means fewer medical breakthroughs. Cutting transportation means worse roads and bridges.

The deficit problem is mostly a revenue problem and a health care cost problem. Revenue has not kept pace with spending, largely because of tax cuts enacted over the past two decades and because health care costs keep growing faster than the economy. Closing the deficit would require either significant tax increases, significant benefit cuts, or both. Neither is popular. Both are probably necessary in some combination.

What This Means for the Debates You Hear

When politicians talk about cutting the budget, ask yourself a few questions:

1. What are they actually proposing to cut? If they are talking about "waste, fraud, and abuse" without naming specific programs, they are probably not serious. Every budget dollar has a recipient who considers it essential.

2. Is it discretionary or mandatory? Cutting discretionary spending is Congress's annual job but only affects about 25% of the budget. Changing mandatory spending requires new legislation and is politically much harder.

3. What are the actual dollar amounts? Eliminating the Department of Education ($80 billion) would cover about 4% of the deficit. Eliminating all foreign aid ($55 billion) would cover about 3%. These are real programs with real effects, but they are not the reason the deficit exists.

4. Are they talking about the revenue side too? A budget has two sides: spending and revenue. Anyone who talks only about cuts without mentioning taxes is showing you half the ledger.

The federal budget is not a mystery. The numbers are published every year by the Congressional Budget Office, the Treasury Department, and the Office of Management and Budget. The challenge is not finding the data. It is getting past the misconceptions that dominate most of the debate.

Understanding how the budget process works, what the national debt actually is, and how spending relates to the broader economy gives you a much clearer picture than any campaign speech will.