Key Takeaways
- FY2026 federal spending totals about $7.4 trillion (23.3% of GDP) against $5.6 trillion in revenue (17.5% of GDP) - a $1.9 trillion gap covered by borrowing, per the Congressional Budget Office (CBO).
- Social Security is the single largest category at roughly 22% of the budget, followed by Medicare (~16%); defense, net interest, and Medicaid/other health programs are roughly tied around 14% each.
- Net interest on the national debt has grown into one of the three largest line items - on par with defense spending - and is the fastest-growing part of the budget.
- Mandatory spending (Social Security, Medicare, Medicaid, interest) makes up about 65% of the budget; the remaining 35% is discretionary spending Congress sets fresh every year, including defense.
- 'Economic security' programs - SNAP, the EITC, Child Tax Credit, unemployment insurance, SSI - together account for roughly 9% of spending, a fraction of what Social Security and Medicare cost.
- Looking ahead to 2027: interest costs and health/retirement spending are projected to keep growing faster than the rest of the budget, continuing to squeeze the discretionary share that funds everything else.
For every dollar the federal government spent in fiscal year 2026, about 22 cents went to Social Security and 16 cents went to Medicare. That’s before a single cent goes to defense, interest on the debt, or anything else.
Total federal spending in FY2026 runs about $7.4 trillion — 23.3% of the entire U.S. economy — against $5.6 trillion in revenue, according to the Congressional Budget Office‘s latest Budget and Economic Outlook. That $1.9 trillion gap gets covered by borrowing.
Here’s where the money actually goes, broken down by category, using the same functional classifications the CBO and the Center on Budget and Policy Priorities use in their own annual breakdowns.
The Big Three: Social Security, Medicare, and Defense
Social Security (~22%) is the largest single line item. It funds monthly retirement benefits along with survivor and disability benefits — see my Social Security COLA guide for how the annual cost-of-living increase gets calculated.
Medicare (~16%) covers health insurance for people 65 and older and many people with disabilities. Combined with Medicaid and other health programs, health insurance spending is actually the single largest functional category overall once you add it all together.
Defense (~14%) covers the Defense Department’s operations, personnel, procurement, and research — this is discretionary spending, meaning Congress sets the amount fresh each year rather than it being locked in by existing law.
Net Interest: The Line Item Nobody Budgeted For
Interest on the national debt has quietly become one of the three biggest categories in the entire federal budget, at roughly 14% — essentially tied with defense spending. It didn’t get spent on anything new; it’s simply the cost of servicing debt the government has already accumulated.
This is also the fastest-growing part of the budget. Both the total amount of debt and the interest rate paid on it have risen, and neither of those is a lever Congress can quickly pull the way it can with a program’s funding level.
Where the Rest Goes: Medicaid, Veterans, and Economic Security Programs
Medicaid and other health programs (~14%) — Medicaid, CHIP, and ACA marketplace subsidies together make up the rest of the health insurance category alongside Medicare.
Veterans’ benefits and federal retirees (~6%) covers disability payments, medical care, and pensions for veterans and retired federal employees, both civilian and military.
Economic security programs (~9%) is where the safety-net programs most people think of live: the refundable parts of the Earned Income Tax Credit and Child Tax Credit, unemployment insurance, Supplemental Security Income, and SNAP. All of these combined still cost less than a third of what Social Security alone costs.
Everything else (~5%) covers education, transportation and infrastructure, scientific research, law enforcement, and international affairs (including foreign aid) — combined. International affairs alone is under 1% of the total budget, despite surveys consistently finding that people estimate it at 20-30%.
Mandatory vs. Discretionary: Why Congress Can’t Just “Cut the Budget”
About 65% of federal spending is mandatory — Social Security, Medicare, Medicaid, and interest payments are set by existing law and grow automatically as eligibility and costs change, without a new vote from Congress each year.
The remaining 35% is discretionary spending, decided fresh in the annual appropriations process. Defense is by far the largest piece of that discretionary total, which is why “just cut spending” is a much smaller lever than it sounds — most of the largest categories aren’t up for an annual vote at all.
Subscribe or follow us — I’ll update these figures as new CBO and OMB estimates come out.
Worked Examples: What This Looks Like for a Real Tax Bill
These examples apply the overall federal spending percentages above to an individual’s total federal tax bill (income tax plus their share of payroll tax) — it’s an illustrative allocation, not a literal trace of specific dollars, since Social Security and Medicare are actually funded through a dedicated payroll tax separate from the income tax most people file every April. Still, it’s the clearest way to see the scale.
Mark owes $12,000 in total federal tax this year. Applying the categories above: about $2,640 goes toward Social Security, $1,920 toward Medicare, $1,680 toward defense, $1,680 toward net interest, $1,680 toward Medicaid and other health programs, $1,080 toward economic security programs, $720 toward veterans’ and federal retiree benefits, and the remaining $600 toward everything else combined.
Sarah owes $4,500 in total federal tax. The same breakdown scales down proportionally: about $990 to Social Security, $720 to Medicare, $630 each to defense, net interest, and Medicaid/health programs, $405 to economic security programs, $270 to veterans’ benefits, and $225 to everything else.
Common Issues to Watch Out For
Assuming foreign aid is a huge chunk of the budget. It’s a persistent myth — international affairs spending, including humanitarian aid, is under 1% of the total. Polls have shown people guessing 20% or more.
Confusing “my income tax” with “all federal revenue.” Social Security and Medicare are funded mainly through payroll (FICA) taxes, not the income tax you file every April. The spending breakdown here reflects total federal outlays funded by all revenue sources combined, plus borrowing. If you’re curious how your own income tax bill and refund fit into this bigger picture, that’s a separate calculation from the spending side covered here.
Thinking discretionary cuts can meaningfully shrink the deficit. Non-defense discretionary spending — the part of the budget that funds things like education and infrastructure — is a relatively small slice next to Social Security, Medicare, and interest, all of which are much harder to change quickly.
Assuming the numbers are static year to year. The mix shifts as populations age into Medicare and Social Security, as interest rates change, and as Congress adjusts program rules — this is worth revisiting annually, not treating as a fixed pie chart.
Looking Ahead: 2027 Outlook
Health and retirement spending, along with interest on the debt, are projected to keep growing faster than the rest of the budget — the Committee for a Responsible Federal Budget has estimated that these categories alone will drive the large majority of total spending growth over the next decade, continuing to squeeze the discretionary share that funds everything else.
A few specific things I’m watching heading into 2027: the annual Social Security COLA announcement each October, whether interest costs keep climbing as more debt gets refinanced at current rates, and how the expiration of enhanced ACA marketplace premium tax credits at the end of 2025 works through the health-spending numbers over the coming year. I’ll update this breakdown once FY2027 estimates are finalized.
