How the U.S. government spends your tax dollars

Over the last 75 years, the federal government’s spending priorities have shifted dramatically toward health and social spending. In the last two years, interest expense has made up an elevated share of total government outlays as a result of the staggering level of debt. This presents a challenge for US fiscal policymakers going forward should interest expense related to the national debt continue moving higher.

There are 5 major spending categories: national security, health & income assistance for old-age households, health & income assistance for poor households, “other” government functions, and net interest. First, spending for national security goes to national defense, international affairs, and veterans. Second, spending on old-age households includes Social Security, pensions, and Medicare, health insurance. Third, the government spends on poor and limited-income households with income assistance, cash and cash-in-kind payments, and health assistance, which is mostly Medicaid health insurance. Fourth, the government spends money on all “other” government like transportation, education, etc. Fifth, the government pays interest on debt.

In the 1960s, the majority of US federal government spending was directed toward national security as a result of the Vietnam War. In 1965, national security and related activities comprised 52% of government outlays. Social security was 15% of federal spending. Income assistance was 8%. Health-related spending was less than 2% of the budget since both Medicare, old-age health insurance, and Medicaid, health insurance for those with little or limited income, was enacted in 1965. All other discretionary spending comprised 21% of government spending. Net interest expenses were just 7% of outlays.

By 1975, the federal government had shifted notably toward social spending and away from national security as the war in Vietnam was over. National security related spending dropped to 33% of the budget. Social security increased to 19% of federal spending, and income assistance jumped to 15%. Health related also jumped to 8% of federal spending, with an equal share going to Medicare and Health Assistance. At a high level of abstraction, this accounts for 23% of the federal budget directed to social spending for old-age households and 19% of the federal budget directed to social spending for poor households. Other spending and interest spending were roughly steady at 22% and 7% of federal spending, respectively.

By 1985 with interest rates just off their all-time highs, the share of federal spending going to interest payments increased at the expense of the “other” spending category. With interest just off their peak, net interest expense doubled its share of spending to 14%, and all other spending more than halved to 10%. The largest items of national security, social security, and income assistance remained roughly steady at 31%, 20%, and 14% of the federal spending, respectively. Medicare spending had increased to 7%, and health assistance was steady at 4%.

By 1995 with the Cold War seemingly in the rear-view mirror, U.S. federal spending shifted even more toward social spending and away from national security. Social security, income assistance, net interest, and other spending all remained roughly stead at 22%, 15%, 15%, and 8% of federal spending, respectively. Health-related spending jumped to 19% of federal spending from 11% 10 years prior, with an increase in Medicare to 11% and an increase in health assistance to 8%. Combined, this meant old-age health & social spending increased to a 33% share and poor health & social spending increased to 23%. National security-related spending declined to 21% of spending as it bore the brunt of increases in these other areas. Net interest and other spending moved only modestly to 15% and 8%, respectively.

By 2005, net interest expense dropped to the broad benefit of most other spending categories. Net interest expense decline to 7%, and on the flip side national security, health-related, and other spending increased modestly. Social security and income assistance were roughly unchanged.

By 2015 on the back of the Great Recession and an aging population, social spending grew its share even further. Health and social spending on old-age households increased to 39% and spending on poor households increased to a 27% share. Most of the increase was in health-related spending in line with the passage of the Affordable Care Act (“Obamacare”). Health-related spending increased to 28%, with an increased in Medicare to 15% and an increase in health assistance to 13%. Social security increased to 24%, and income assistance was unchanged. National security spending declined modestly to 22%, and other spending almost halved to 6%. Interest expense was roughly unchanged at 6%.

Through the latest fiscal year of 2023, the pandemic and related macro policy responses led to a rise in net interest spending at the expense of most other spending categories. Net interest increased to 11% of spending, which in effect is a massive waste of money. Old-age household spending declined modestly to 36%, to 22% for Social Security and to 14% for Medicare, and poor household spending was steady at 27%. National security spending declined to 19%, and other spending was roughly unchanged at 6%.

It is a frightening picture of spending as the population is getting older and the poor people relatively poorer. A staggering 63% of the federal budget is allocated to the old and the poor. The wasteful lending and credit-card mentality has resulted in a national debt of $34 trillion and it is growing, leading to billions of wasted interest payments. Education and infrastructure spending is buried in Other and that shows the low priority of these categories. It would be better to start over and create a new, dynamic budget with a better use of resources. Looking at the spending trend, the U.S. is clearly heading in the wrong direction.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *