======================================================================== 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 ======================================================================== EXECUTIVE SUMMARY ----------------- 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. ======================================================================== PART 1: WHERE THE MONEY COMES FROM - REVENUE SOURCES (FY 2025-2026) ======================================================================== 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). ======================================================================== PART 2: HOW MONEY FLOWS THROUGH THE FEDERAL BUDGET PROCESS ======================================================================== 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 ======================================================================== PART 3: TOTAL FEDERAL SPENDING - THE BIG PICTURE ======================================================================== 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 ------------------------------------------------------------------------ SPENDING BY BUDGET FUNCTION (FY 2025 - USAspending.gov): ------------------------------------------------------------------------ 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. ------------------------------------------------------------------------ SPENDING BY AGENCY (FY 2025 - Top 20 - USAspending.gov): ------------------------------------------------------------------------ 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 ======================================================================== PART 4: MANDATORY vs. DISCRETIONARY BREAKDOWN ======================================================================== CBO FY 2026 PROJECTIONS (in billions of dollars): MANDATORY SPENDING: $4,529B (60.8% of total outlays) ------------------------------------------------------ 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) ------------------------------------------------------ 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) ------------------------------------------------------ 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. ======================================================================== PART 5: SPENDING BY OBJECT CLASS - HOW THE MONEY IS SPENT ======================================================================== 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. ======================================================================== PART 6: LARGEST INDIVIDUAL RECIPIENTS ======================================================================== TOP CONTRACT RECIPIENTS (FY 2025 - Aggregated by Company): -------------------------------------------------------------- 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): -------------------------------------------------------------- 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) ======================================================================== PART 7: NATIONAL DEBT & INTEREST OBLIGATIONS ======================================================================== 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 ======================================================================== PART 8: FY 2026 BUDGET PRIORITIES (President's Budget Request) ======================================================================== 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%) ======================================================================== PART 9: KEY PATTERNS & TRENDS DISCOVERED ======================================================================== 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 ======================================================================== PART 10: THE COMPLETE MONEY FLOW DIAGRAM ======================================================================== 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. ======================================================================== SOURCES & DATA FRESHNESS ======================================================================== - 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 ======================================================================== END OF REPORT ========================================================================