Where Government Spending Goes

Among the federal government’s largest spending categories–Social Security (21%), Health (14%), Net interest (13%), Medicare (13%), and National Defense (13%)–only National Defense is discretionary. The other four are required by the law. At a whopping 61% of federal spending, those mandatory categories disburse $1,357 billion.

At 21%, Social Security spends $374 billion. The smallest of the five, Medicare disburses $233 billion:

Through taxes and borrowing, we pay for our spending.

But who receives it?

Federal Spending Recipients

Age

In a recent paper from the Economic Innovation Group, researchers looked at the people that receive the most money from the federal government. Called transfers, the payments are not for producing any good or service. Rather, money is transferred to you because are in a certain category of recipients such as the elderly, the unemployed, or the disabled. Since 2000, the cost of transfers has skyrocketed because we are older and healthcare is more expensive. Living longer, we accumulate an increasingly hefty amount of doctor visits and old age benefits that the federal government pays for. It all added up to $3.8 trillion in transfers in 2022.

Not all of us, though, even in the recipients’ categories, get the transfers. It can depend on where you live. When we compare San Mateo California or Arlington Virginia to eastern Kentucky or rural New Mexico, we see a vast disparity in disbursements. In vibrant, younger urban areas, transfers compose just 5% of total income. By contrast, individuals that live in areas with economic and population loss depend on government for close to half of their income.

Because we are talking about age, the EIG paper suggests that spending tilts toward an older cohort. As a result, they wonder if benefits for the elderly rather than research and childcare and education become political priorities. In addition, other transfers such as unemployment insurance, and food stamps have a similar impact. Our spending could counter economic growth instead of feeding it.

Geography

While the yellow shades of the U.S. increased colossally from 1970 to 2022, it was concentrated among specific states:

West Virginia, Mississippi and Arkansas top the list of states receiving transfer payments:

Politics:

Furthermore, the states that have republican majorities tend to get more transfers:

Our Bottom Line: Fiscal Policy

Spending, taxes, and borrowing compose our government’s fiscal policy. The graphic that we began with covers spending through its categories. With government spending in the headlines, let’s be sure we know where that money goes (and went).

As economists, we should always know the tradeoffs of a decision.

My sources and more: As a source of data for government spending, this U.S. Treasury site is ideal. Then, for more targeted analysis, this paper and this WSJ summary of the paper provided insight.