How are Federal Taxes Spent

7 minute read

What is Federal Revenue?

Federal revenue primarily comes from taxes and other government-collected funds, such as tariffs and fines. The main sources of federal tax revenue include individual income taxes, payroll taxes, and corporate income taxes. These taxes are collected by the Internal Revenue Service (IRS).

How is Federal Revenue Spent?

Federal revenue is spent on a wide range of programs and services, which are divided into three main categories: mandatory spending, discretionary spending, and net interest.

Mandatory spending, also known as entitlement spending, includes programs such as Social Security, Medicare, and Medicaid, which are required by law and are not subject to the annual appropriations process. These programs are designed to provide a safety net for citizens and are typically considered the most politically sensitive.

Discretionary spending, on the other hand, is determined through the annual appropriations process and includes things like national defense, infrastructure, and education. These programs are not mandatory and can be changed or eliminated by Congress.

Net interest is the amount of money the federal government spends on interest payments on its debt.

The largest category of federal spending is mandatory spending, which accounts for around 60% of the federal budget. Discretionary spending accounts for around 30%, and net interest accounts for around 10% of the budget.

It's worth noting that the specific allocation of federal revenue changes from year to year and is also subject to political priorities and negotiations.

Here is a breakdown of some of the biggest programs funded by US Federal Revenue:

Social Security

Social Security is a federal program in the United States that provides retirement, disability, and survivor benefits to eligible individuals. The program is funded by payroll taxes, which are collected from workers and their employers. Social Security is considered a “pay-as-you-go” system, meaning that current workers' payroll taxes are used to pay benefits to current beneficiaries. The program is administered by the Social Security Administration (SSA).

Healthcare

Healthcare in the United States refers to the system of medical services and treatments provided to individuals and families. The healthcare system in the United States is complex and multifaceted, with a mix of public and private funding sources and delivery systems. The federal government plays a significant role in healthcare through programs such as Medicaid, which provides health coverage to low-income individuals and families, and Medicare, which provides coverage for individuals over the age of 65 and some individuals with disabilities. 

Defense and Security

Defense and security is a major component of the United States federal budget. The budget for defense and security is allocated to fund various programs and initiatives aimed at protecting the country from external and internal threats. This includes funding for the Department of Defense, which is responsible for managing the military, as well as various intelligence agencies and law enforcement agencies such as the Federal Bureau of Investigation (FBI) and the Department of Homeland Security (DHS). 

Interest on the National Debt

Interest on the national debt refers to the amount of money that the government of the United States must pay to its creditors on a regular basis to service the debt that it has accumulated. This interest is paid on bonds and other securities that have been issued by the government to finance its operations, including the borrowing of money to fund budget deficits. The amount of interest paid on the national debt can vary depending on a number of factors, including the overall level of government borrowing and the current interest rates in the economy.

Federal Deficit vs. Federal Debt

The federal deficit is the difference between the amount of money the government takes in from revenues, such as taxes, and the amount of money it spends in a given fiscal year. When the government spends more money than it takes in, it runs a budget deficit.

On the other hand, federal debt is the total amount of money the government owes to its creditors, including bonds and other securities it has issued. It is the accumulation of all budget deficits over time, minus any budget surpluses. In other words, it is the total amount of money the government has borrowed to finance its operations.

In summary, the federal deficit is an annual measure of the government's budget shortfall, while the federal debt is the total amount of money the government owes as a result of past deficits.

Safety Net Programs

Safety net programs refer to a group of government-funded programs that provide assistance to individuals and families in need, such as those living in poverty, those experiencing homelessness, and those facing other forms of hardship. Examples of safety net programs include Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and Temporary Assistance for Needy Families (TANF).

Other Expenditures

Other expenditures can include various programs such as infrastructure development, scientific research, education, and environmental protection.

The United States Budget

The United States Budget request for fiscal year 2023 called for $5.8 trillion in federal spending. President Biden's budget includes $1.6 trillion in discretionary spending.

Easily Save Clients Thousands in Taxes

Scan client returns. Uncover savings. Export a professional tax plan. All in minutes.

Conclusion

In conclusion, the main sources of federal revenue include taxes and other forms of income, while the main categories of federal spending include defense and security, interest on the national debt, healthcare, Social Security, safety net programs and other expenditures.

Take The Next Step

See how Corvee allows your firm to break free of the tax prep cycle and begin making the profits you deserve.

Want to Learn More?

Please fill out the form below.

  • This field is for validation purposes and should be left unchanged.

Interested in Partnering?

Fill out the form below, and we'll be in touch.

Want to Learn More?

Please fill out the form below.

  • This field is for validation purposes and should be left unchanged.

Want to Learn More?

Please fill out the form below.

Want to Learn More?

Please fill out the form below.

  • This field is for validation purposes and should be left unchanged.

Schedule Your Free Demo

  • Hidden
  • Hidden
  • Hidden
  • This field is for validation purposes and should be left unchanged.

Schedule a Free Demo with Q&A

Schedule a Free
Demo with Q&A

Let us show you how you could save your clients thousands of dollars and make tax planning easier than ever with Corvee.

Request a Demo 2.0 (Tax advisor or accountant)

"*" indicates required fields

This field is for validation purposes and should be left unchanged.

By clicking the button above I confirm that I have read and agree to the Terms & Conditions and Privacy Policy and agree to receive emails and texts about promotions at the phone number and email provided, and understand this consent is not required to purchase.