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COMPREHENSIVE FEDERAL GOVERNMENT MONEY FLOW ANALYSIS
Following the Trail of Government Spending
Sources: USAspending.gov, CBO, Treasury Fiscal Data, OMB Budget
Report Date: February 24, 2026
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EXECUTIVE SUMMARY
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The U.S. federal government collected $5.23 TRILLION in revenue in FY 2025
and spent $7.01 TRILLION, resulting in a $1.78 TRILLION deficit. The national
debt stands at $38.75 TRILLION. Interest payments alone consume $1+ trillion
per year (14% of spending), now rivaling national defense. The vast majority
of spending (71%) flows as grants, transfers, and direct payments to
individuals, states, businesses, and healthcare providers.
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PART 1: WHERE THE MONEY COMES FROM - REVENUE SOURCES (FY 2025-2026)
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TOTAL FEDERAL REVENUE FY 2025: $5.23 TRILLION (17% of GDP)
CBO Projection FY 2026: $5.60 TRILLION (17.5% of GDP)
REVENUE BREAKDOWN (CBO FY 2026 Projections):
1. Individual Income Taxes: $2,751B (49.1%) -- LARGEST SOURCE
2. Payroll Taxes (SS/Medicare): $1,826B (32.6%) -- 2nd largest
3. Customs Duties: $418B (7.5%)
4. Corporate Income Taxes: $404B (7.2%)
5. Other Revenue: $197B (3.5%)
(excise taxes, estate taxes, Fed Reserve earnings, fees)
KEY REVENUE INSIGHT: Individual income taxes + payroll taxes = 81.7% of
all federal revenue. Corporate taxes contribute only 7.2%. Revenue has
increased 12% year-over-year in FYTD 2026 ($1.78T vs $1.60T same period).
Historical note: Before 1913, 90% of federal revenue came from taxes on
liquor, beer, wine, and tobacco (IRS.gov).
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PART 2: HOW MONEY FLOWS THROUGH THE FEDERAL BUDGET PROCESS
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THE BUDGET PROCESS FLOW:
Step 1: REVENUE COLLECTION
- IRS collects individual/corporate income taxes and payroll taxes
- Customs & Border Protection collects tariffs/duties
- Various agencies collect fees, fines, and other receipts
- Money flows to the U.S. Treasury General Fund (except trust funds)
Step 2: TRUST FUND SEGREGATION
- Payroll taxes are split into dedicated TRUST FUNDS:
* Old Age and Survivors Insurance Trust Fund (OASI) - Social Security
* Disability Insurance Trust Fund (DI) - Social Security Disability
* Hospital Insurance Trust Fund (HI) - Medicare Part A
- These funds can ONLY be used for their designated purposes
- $7.60 TRILLION in intragovernmental holdings (trust fund securities)
Step 3: BUDGET FORMULATION
- President submits budget recommendations (President's Budget)
- Congress reviews, revises, and votes during appropriations process
- Two types of spending authority:
a) MANDATORY (autopilot) - Existing laws dictate spending levels
b) DISCRETIONARY (annual vote) - Congress decides each year
Step 4: SPENDING EXECUTION
- Agencies obligate funds (sign contracts, award grants, etc.)
- Treasury disburses payments to recipients
- Bureau of Fiscal Service manages all federal payments/collections
Step 5: BORROWING TO COVER DEFICIT
- When spending exceeds revenue, Treasury borrows by selling securities
- Treasury bonds, bills, notes, TIPS, floating rate notes
- Adds to national debt; interest must be paid on all borrowings
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PART 3: TOTAL FEDERAL SPENDING - THE BIG PICTURE
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TOTAL FEDERAL OUTLAYS FY 2025: $7.01 TRILLION (23% of GDP)
CBO Projection FY 2026: $7.45 TRILLION (23.3% of GDP)
CBO Projection FY 2036: $11.42 TRILLION (23.8% of GDP)
10-Year Total (2027-2036): $94.6 TRILLION projected
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SPENDING BY BUDGET FUNCTION (FY 2025 - USAspending.gov):
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1. Medicare: $1,837B (17.8%)
2. Social Security: $1,668B (16.1%)
3. National Defense: $1,416B (13.7%)
4. Net Interest: $1,251B (12.1%)
5. Health (Medicaid, etc.): $1,145B (11.1%)
6. Income Security: $759B (7.3%)
7. General Government: $511B (5.0%)
8. Veterans Benefits & Services: $413B (4.0%)
9. Education/Training/Employment: $222B (2.1%)
10. Transportation: $198B (1.9%)
11. Natural Resources & Environment: $133B (1.3%)
12. Administration of Justice: $115B (1.1%)
13. Community & Regional Development: $106B (1.0%)
14. Commerce & Housing Credit: $96B (0.9%)
15. Agriculture: $73B (0.7%)
16. International Affairs: $72B (0.7%)
17. Energy: $63B (0.6%)
18. General Science/Space/Technology: $48B (0.5%)
TOTAL: ~$10.3T (obligations basis)
NOTE: USAspending.gov total ($10.3T) includes obligations, which differ
from outlays ($7.01T) reported by Treasury. Obligations = money promised;
Outlays = money actually paid out.
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SPENDING BY AGENCY (FY 2025 - Top 20 - USAspending.gov):
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1. Dept. of Health & Human Services: $2,794B (27.0%) -- #1 BY FAR
2. Dept. of the Treasury: $1,954B (18.9%)
3. Social Security Administration: $1,740B (16.8%)
4. Dept. of Defense: $1,451B (14.0%)
5. Dept. of Veterans Affairs: $412B (4.0%)
6. Dept. of Agriculture: $277B (2.7%)
7. Office of Personnel Management: $262B (2.5%)
8. Dept. of Education: $180B (1.7%)
9. Dept. of Homeland Security: $171B (1.7%)
10. Dept. of Transportation: $170B (1.6%)
11. Dept. of Energy: $99B (1.0%)
12. Dept. of Housing & Urban Dev.: $91B (0.9%)
13. Dept. of Commerce: $72B (0.7%)
14. Dept. of Labor: $71B (0.7%)
15. Dept. of Justice: $50B (0.5%)
16. Dept. of State: $44B (0.4%)
17. Dept. of the Interior: $43B (0.4%)
18. General Services Administration: $42B (0.4%)
19. Corps of Engineers - Civil Works: $35B (0.3%)
20. National Aeronautics & Space Admin: $28B (0.3%)
KEY FINDING: Top 4 agencies = 77% of all federal spending
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PART 4: MANDATORY vs. DISCRETIONARY BREAKDOWN
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CBO FY 2026 PROJECTIONS (in billions of dollars):
MANDATORY SPENDING: $4,529B (60.8% of total outlays)
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Social Security: $1,666B (22.4%)
Medicare (net): $1,063B (14.3%)
Medicaid/CHIP/Marketplace Subsidies: $845B (11.3%)
Other Mandatory: $955B (12.8%)
(includes: federal employee retirement, SNAP/food stamps,
veterans pensions, earned income tax credit, unemployment
insurance, farm subsidies, Supplemental Security Income)
DISCRETIONARY SPENDING: $1,880B (25.2% of total outlays)
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Defense: $885B (11.9%)
Nondefense: $996B (13.4%)
(includes: education, transportation, veterans health,
science research, law enforcement, foreign aid,
environmental protection, housing, disaster relief)
NET INTEREST: $1,039B (14.0% of total outlays)
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Interest on $38.75 trillion national debt
Average interest rate: 3.316%
As of Jan 2026: $426B already spent (17% of FYTD spending)
CRITICAL TREND: Mandatory spending grows from 60.8% to 61.5% by 2036.
Discretionary spending SHRINKS from 25.2% to 19.2%. Interest GROWS
from 14.0% to 18.8%. Congress has less and less control over spending.
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PART 5: SPENDING BY OBJECT CLASS - HOW THE MONEY IS SPENT
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FY 2025 OBJECT CLASS BREAKDOWN (USAspending.gov - $10.3T obligations):
1. Grants & Fixed Charges: $7,386B (71.5%) -- DOMINANT CATEGORY
(Social Security payments, Medicare/Medicaid, grants to states,
direct payments to individuals, subsidies)
2. Contractual Services: $1,199B (11.6%) -- Federal contracts
3. Personnel Compensation: $872B (8.4%) -- Federal employees
4. Other: $350B (3.4%)
5. Acquisition of Assets: $299B (2.9%) -- Equipment, property
6. Unknown/Unreported: $227B (2.2%)
KEY FINDING: 71.5% of all federal money flows out as grants, transfers,
and payments - NOT for running government operations. Only 8.4% goes to
federal employee salaries. The government is primarily a TRANSFER MACHINE,
collecting money and redistributing it.
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PART 6: LARGEST INDIVIDUAL RECIPIENTS
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TOP CONTRACT RECIPIENTS (FY 2025 - Aggregated by Company):
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1. LOCKHEED MARTIN CORPORATION: $34.07B -- #1 CONTRACTOR
2. OPTUM PUBLIC SECTOR SOLUTIONS: $22.49B (healthcare IT)
3. ELECTRIC BOAT CORPORATION: $21.37B (submarines)
4. TRIWEST HEALTHCARE ALLIANCE: $13.37B (VA healthcare)
5. MCKESSON CORPORATION: $11.87B (pharmaceuticals)
6. RAYTHEON COMPANY: $10.73B (defense)
7. RTX CORPORATION: $7.28B (defense/aerospace)
8. BOOZ ALLEN HAMILTON: $6.56B (consulting)
9. BOEING COMPANY: ~$29.5B (single largest contract - KC-X)
10. HUNTINGTON INGALLS: $6.71B (shipbuilding)
TOTAL FEDERAL CONTRACTS FY 2025: 5,738,872 contract actions
Top Contracting Agencies: DOD ($491B), VA ($78B), DOE ($49B),
DHS ($28B), GSA ($24B), HHS ($21B)
TOP GRANT RECIPIENTS (FY 2025 - Aggregated):
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Almost ALL top grant recipients are STATE HEALTH DEPARTMENTS:
1. California Dept. of Health Care Services: $112.54B
2. New York State Dept. of Health: $76.53B
3. Texas Health & Human Services Commission: $33.83B
4. Pennsylvania Dept. of Human Services: $32.28B
5. North Carolina Dept. of Health: $28.52B
6. Ohio Dept. of Medicaid: $27.72B
7. Florida Agency for Health Care Admin: $22.83B
8. Illinois Dept. of Healthcare: $21.83B
9. Michigan Dept. of Health & Human Services: $21.65B
10. New Jersey Dept. of Human Services: $18.44B
KEY FINDING: The largest grant recipients are state governments
receiving MEDICAID funds. Federal health grants to states dwarf all
other grant categories combined.
Top Grant-Awarding Agencies: HHS ($826B), DOT ($124B), USDA ($57B),
Education ($51B), DHS ($33B), DOE ($29B), HUD ($28B), EPA ($26B)
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PART 7: NATIONAL DEBT & INTEREST OBLIGATIONS
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NATIONAL DEBT: $38.75 TRILLION (as of Feb 2026)
DEBT COMPOSITION:
Debt Held by Public: $30.92T (80%) -- investors, foreign govts
Intragovernmental Holdings: $7.60T (20%) -- trust fund securities
DEBT TRENDS:
2016: $19.02T total ($13.66T public + $5.36T intragovernmental)
2026: $38.52T total ($30.92T public + $7.60T intragovernmental)
Change: Debt DOUBLED in 10 years (+102%)
Public debt increased 126% since 2016
INTEREST EXPENSE:
FY 2025: ~$1.05 TRILLION in interest payments
FYTD 2026: $427 BILLION already (through January)
Average Interest Rate: 3.316% (up from 2.23% in recent years)
Interest = 14% of all federal spending (tied with defense!)
CBO projects interest growing to $2.14T by 2036 (4.6% of GDP)
DEBT CEILING: Maximum borrowing limit set by Congress. If reached,
government cannot increase debt, losing ability to pay bills.
The U.S. has NEVER defaulted on its obligations.
CBO PROJECTIONS:
Debt as % of GDP: 101% (2026) -> 120% (2036) -- surpasses WWII record!
Deficit FY 2026: $1.9T -> $3.1T by 2036
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PART 8: FY 2026 BUDGET PRIORITIES (President's Budget Request)
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TOTAL BASE DISCRETIONARY: $1,613.1B (flat vs. FY 2025)
BIGGEST INCREASES:
Defense: $848B -> $962B (+$113B, +13.4%)
Homeland Security: $65B -> $107B (+$42B, +64.9%)
Veterans Affairs: $160B -> $187B (+$28B, +17.3%)
Transportation: $25B -> $27B (+$1.5B, +5.8%)
BIGGEST CUTS:
State & International: $59B -> $10B (-$49B, -83.7%)
HUD: $77B -> $44B (-$34B, -43.6%)
HHS (discretionary): $127B -> $94B (-$33B, -26.2%)
Education: $79B -> $67B (-$12B, -15.3%)
NASA: $25B -> $19B (-$6B, -24.3%)
EPA: $9B -> $4B (-$5B, -54.5%)
NSF: $9B -> $4B (-$5B, -55.8%)
Interior: $17B -> $12B (-$5B, -30.5%)
Labor: $13B -> $9B (-$5B, -34.9%)
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PART 9: KEY PATTERNS & TRENDS DISCOVERED
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PATTERN 1: THE GOVERNMENT IS A TRANSFER MACHINE
- 71.5% of spending flows as grants, transfers, and direct payments
- Only 8.4% goes to federal employee salaries
- Only 11.6% goes to federal contracts
- The government primarily COLLECTS and REDISTRIBUTES money
PATTERN 2: HEALTHCARE DOMINATES EVERYTHING
- HHS is the #1 agency ($2.79T, 27% of spending)
- Medicare + Medicaid + Health = $2.98T (29% of spending)
- Largest grant recipients are ALL state health departments
- Healthcare spending projected to keep growing faster than GDP
PATTERN 3: THE INTEREST DEATH SPIRAL
- Interest payments ($1.05T) now rival national defense ($1.42T)
- Debt doubled in 10 years ($19T -> $38.75T)
- Interest projected to reach $2.14T by 2036
- Higher debt -> more interest -> larger deficits -> more debt
- By 2036, interest alone = 18.8% of spending (nearly 1 in 5 dollars)
PATTERN 4: MANDATORY SPENDING CROWDS OUT EVERYTHING ELSE
- 60.8% of spending is mandatory (autopilot, no annual vote)
- Only 25.2% is discretionary (what Congress actually controls)
- Discretionary share projected to shrink to 19.2% by 2036
- Congress has decreasing control over the federal budget
PATTERN 5: DEFENSE CONTRACTORS DOMINATE FEDERAL PROCUREMENT
- Top 10 contractors are overwhelmingly defense/aerospace firms
- Lockheed Martin alone: $34B (largest single contractor)
- DOD contracts: $491B (70%+ of all federal contracts)
- Healthcare contractors (Optum, TriWest, McKesson) are growing fast
PATTERN 6: THE MONEY ULTIMATELY GOES TO:
a) INDIVIDUALS (40%+): Social Security checks, Medicare claims,
Medicaid coverage, SNAP benefits, tax refunds, veterans benefits
b) STATE GOVERNMENTS (15%+): Medicaid matching funds, education
grants, transportation funding, block grants
c) DEFENSE CONTRACTORS (7%): Lockheed Martin, Boeing, Raytheon,
Northrop Grumman, General Dynamics, Huntington Ingalls
d) HEALTHCARE PROVIDERS/COMPANIES (10%+): Hospitals, doctors,
pharmaceutical companies, insurance companies, health IT firms
e) BONDHOLDERS (14%): Interest payments to domestic and foreign
holders of U.S. Treasury securities
f) FEDERAL EMPLOYEES (8%): 2.1 million civilian + 1.3 million
active duty military personnel
PATTERN 7: THE DEFICIT IS STRUCTURAL
- Last surplus: 2001 (25 years ago)
- Revenue = 17% of GDP; Spending = 23% of GDP
- 6-point gap means ~$1.8T+ annual deficits are the "new normal"
- Only 4 surplus years in the last 50 years
PATTERN 8: FY 2026 BUDGET SHIFTS DRAMATICALLY
- Defense +13.4%, Homeland Security +64.9%, Veterans +17.3%
- State Dept -83.7%, HUD -43.6%, NSF -55.8%, EPA -54.5%
- Total discretionary held flat at $1.613T (reshuffled, not cut)
- Massive shift from civilian/international to military/border
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PART 10: THE COMPLETE MONEY FLOW DIAGRAM
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REVENUE IN ($5.6T):
Individual Income Tax ($2.75T) ----\
Payroll Taxes ($1.83T) -------------> U.S. TREASURY
Corporate Tax ($0.40T) -------------> GENERAL FUND
Customs/Tariffs ($0.42T) ----------> + TRUST FUNDS
Other ($0.20T) -------------------> ($5.6T total)
|
+ BORROWING ($1.9T deficit) ------------>|
|
SPENDING OUT ($7.4T): v
FEDERAL AGENCIES
|
+-- MANDATORY ($4.5T, 61%) ------------> Individuals
| Social Security ($1.67T) --------> 62M beneficiaries
| Medicare ($1.06T) ---------------> 65M+ enrollees
| Medicaid ($0.85T) ---------------> State govts -> providers
| Other ($0.96T) ------------------> Various recipients
|
+-- DISCRETIONARY ($1.9T, 25%) --------> Mixed recipients
| Defense ($0.89T) ----------------> Defense contractors
| Nondefense ($1.0T) --------------> Agencies -> public
|
+-- NET INTEREST ($1.04T, 14%) --------> Bondholders
Domestic investors ---------------> Banks, funds, individuals
Foreign governments --------------> Japan, China, UK, etc.
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SOURCES & DATA FRESHNESS
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- USAspending.gov: FY 2025 full year + FY 2026 partial (through Dec 2025)
- CBO Budget & Economic Outlook 2026-2036 (January 2026 release)
- Treasury Fiscal Data (fiscaldata.treasury.gov) - Updated Jan 31, 2026
- OMB President's FY 2026 Budget Request (May 2, 2025)
- All figures in current dollars unless otherwise noted
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END OF REPORT
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