Money For Nothing

One thing I’ve never really concerned myself with, until recently, is the subject of government spending. Given the current news cycle, I wanted to understand more precisely the facts and data, without interpretation. Realizing that this is a complicated issue, I started with trying to understand the big picture.

Revenue Minus Spending Equals Deficit/Surplus

This is the easiest part to understand because it is exactly like personal finance. If you spend less than you earn, you can build up savings (surplus). However, if you spend more than you make, then you must tap into savings or take out a loan to meet your costs (deficit). Without trying to understand the implications for the government, here are the numbers provided by the U.S. Treasury, through it’s website https://fiscaldata.treasury.gov/:

• For fiscal year 2024, the U.S. Federal Government collected revenues of around $4.92 trillion.
• In the same period, the U.S. Federal Government spent $6.76 trillion.
• So, the deficit increased by $1.84 trillion (rounding up).
• Our current national debt is over $36 trillion as of February 2025.

That’s straightforward math and it is enough to get people very worked up. But what about the details?

To start, where does the government get its revenues from? It turns out almost 50% of revenue comes from individual taxpayers.

Social Security and Medicare taxes are just over 36% of revenue. Corporations contribute just over 10% of revenue (seems like a relatively small amount, considering). Estate and gift taxes are less than one percent. The rest of the revenue comes from customs duties, excise taxes, and miscellaneous sources.

Since we taxpayers are footing half the bill, we should know where the government is spending our money. The top ten spending categories are as follows:

Social Security and Medicare are considered mandatory spending categories and so should be ignored for this analysis. We can start by looking at the other categories (discretionary spending) for a sense of where our income taxes are going.

I’m not going to argue with national defense, since no one wants to compromise their safety. However, at that level of spending, one wonders if the audits here might turn up more wasteful spending than in some of the other categories.

The next highest category is net interest. So, we are basically contributing to the huge loan payments that resulted from our over-spending. I think anyone struggling to pay off their student loans knows how this one feels. If you can’t get ahead of the principal payments, all you are doing is spending money for the privilege of having debt.

The rest seems like a reasonable list of services, some of which I may never need to access. But I’m happy that they are available in case I ever do.

If I were running the country, I might look at this from the top down to start balancing the budget and maybe even pay down some debt (which will, in turn, create savings opportunities). As we tell our financial planning clients who have debt to pay off, look at the highest balances and/or the greatest interest rates and start there. It might feel good to get rid of some of the smaller balances, but those are not going to move the needle as much.

While this is a high-level overview of the subject, I’m excited that there is so much data and analysis available on government sites if I even want to go deeper down the rabbit hole. As they say, “the more you know….”

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