April 4, 2017

What does the federal government spend your tax dollars on? Social insurance programs, mostly

It’s springtime, which means the start of the budgeting process for Congress and a mad dash for many Americans to file their income taxes. That makes it a good time to look at the federal government’s spending habits in a broader context than just this year’s battles.

When thinking about federal spending, it’s worth remembering that, as former Treasury official Peter Fisher once said, the federal government is basically “a gigantic insurance company,” albeit one with “a sideline business in national defense and homeland security.” In fiscal year 2016, which ended this past Sept. 30, the federal government spent just under $4 trillion, and about $2.7 trillion – more than two-thirds of the total – went for various kinds of social insurance (Social Security, Medicaid and Medicare, unemployment compensation, veterans benefits and the like). Another $604 billion, or 15.3% of total spending, went for national defense; net interest payments on government debt was about $240 billion, or 6.1%. Education aid and related social services were about $114 billion, or less than 3% of all federal spending. Everything else – crop subsidies, space travel, highway repairs, national parks, foreign aid and much, much more – accounted for the remaining 6%.

It can be helpful to look at spending as a share of the overall U.S. economy, which provides a consistent frame of reference over long periods. In fiscal 2016, total federal outlays were 21.5% of gross domestic product, or GDP. For most of the past several decades, federal spending has hovered within a few percentage points above or below 20%. The biggest recent exception came in the wake of the 2008 mortgage crash: In fiscal 2009, a surge in federal relief spending combined with a shrinking economy to push federal outlays to 24.4% of GDP, the highest level since World War II, when federal spending peaked at nearly 43% of GDP. (We relied on archived historical data from former President Barack Obama’s final budget for our spending data; President Donald Trump’s initial budget proposal doesn’t include any historical data.) 

Measured as a share of GDP, the biggest long-term growth in federal spending has come in human services, a broad category that includes various kinds of social insurance, other health programs, education aid and veterans benefits. From less than 1% of GDP during World War II (when many Depression-era aid programs were either ended or shifted to the war effort), federal spending on human services now amounts to 15.5% of GDP. It actually was higher – 16.1% – in fiscal 2010, largely due to greater spending on unemployment compensation, food assistance and other forms of aid during the Great Recession. Now, the main growth drivers of human-services spending are Medicaid, Medicare and Social Security.

While spending on human services has grown to represent a greater share of GDP over time, the defense share has become smaller: It was 3.3% in fiscal 2016, versus 4.7% as recently as fiscal 2010. In general, and perhaps not surprisingly, defense spending consumes more of GDP during wartime (well over a third at the height of World War II) and less during peacetime. The major exception was the Reagan-era military buildup (which actually accelerated a buildup that began late in the Carter administration): From a post-Vietnam low of 4.5% of GDP in fiscal 1979, defense spending eventually peaked at 6% of GDP in fiscal 1986.

Besides human services and national defense, the next-biggest category of federal spending is interest on public debt. Excluding interest paid to government trust funds (such as the Social Security and military-retirement trust funds) and various other small government loan programs, the $240 billion in net interest paid on federal debt in fiscal 2016 represented 1.3% of GDP. Even though total public debt has continued to grow (it stood at nearly $19.96 trillion in February, hitting the statutory debt limit), the dollar amount of actual interest paid fluctuates with the general interest rate environment. Rates are quite low now, but they were much higher in the 1980s and 1990s; in those decades, net interest payments often approached or exceeded 3% of GDP.

Topics: Economic Policy, Entitlements, Congress, Federal Government, Government Spending and the Deficit, Taxes

  1. Photo of Drew DeSilver

    is a senior writer at Pew Research Center.


  1. Anonymous3 months ago

    Again military spending is played down

  2. Gleb Garshin3 months ago

    “The goal in fluency instruction is not fast reading, although that happens to be a by-product of the instruction, but fluent meaning-filled reading.”
    – International Reading Association

  3. Anonymous4 months ago

    This article is really about the expense side of the equation. Social Insurance taxes (both individual and corporate portions together) represent about 34% of total Federal ‘income’ see taxpolicycenter.org/briefing-boo…

  4. Anonymous4 months ago

    Why no comments or data about how much of the Social Security & Medicare is actually paid for by workers’ through our withholding taxes? It would put spending into a different perspective!!

  5. Anonymous4 months ago

    The Military Spending would be included in defense.

    While SS and Medicare are funded by taxes, there is no money in the trust fund and that will have to be paid out of the general tax fund when it runs out.

  6. Bubzer B4 months ago

    Medicare and Social Security are not part of the budget.

    Medicare is funded by the Social Security Administration. Which means it’s funded by taxpayers: We all pay 1.45% of our earnings into FICA – Federal Insurance Contributions Act, if you’re into deciphering acronyms – which go toward Medicare. Employers pay another 1.45%, bringing the total to 2.9%.

    Military spending, however, is notably absent from this ‘graph’.

    1. Russell Conner4 months ago

      You poor thing.

      You can’t see the light blue portion of the graph labeled “Defense”?

  7. Anonymous4 months ago

    Does this graph include off-budget spending such as military?

  8. Anonymous4 months ago

    No mention that payroll taxes are the revenue stream for SS and Medicare?
    Or that high income earners enjoy a cap on those “contributions”?
    Or that hourly workers who don’t earn enough to pay federal income tax don’t have a dime of those payroll “contributions” returned?
    That lede about rushing to file income taxes is totally misleading.
    Is this the new politically correct way to discuss the federal budget?

    1. Anonymous4 months ago

      Will Pew ever evaluate who is paying the taxes into the governmeant and how much they are getting back? Perhaps you could use Trump’s taxes over the last 10 years as an example.