Where does the government get all of the money it spends? From taxpayers. The government does not have its own money. Its receipts come from individual income taxes, corporate income taxes, estate and gift taxes, social insurance taxes and excise taxes.
All U.S. government spending can be divided into three categories: mandatory spending, discretionary spending and interest on federal debt. For 2013, the government's Office of Management and Budget projects that 62% of federal spending will go toward mandatory items and 31% will go toward discretionary items. Then, because government spending significantly exceeds government revenues, the remaining 7% of government spending will go toward interest on federal debt.

Mandatory spending consists of five categories: Medicare and health; Social Security, unemployment and labor; food and agriculture; veterans' benefits; and transportation. About half of mandatory spending goes to Social Security, about a third goes to Medicare and small percentages go to the remaining three categories. This spending is considered mandatory because the programs are permanent and the government does not set a dollar amount that it wishes to spend in each of these categories. Instead, it creates eligibility rules by which individuals qualify to receive payments from the government through these programs. The only way to increase or decrease mandatory spending is to adjust eligibility requirements so that individuals receive more or fewer benefits.

More than a dozen categories make up the discretionary spending category. More than half of discretionary spending goes to the military, and 5 to 6% goes to each of the following: government, housing and community, education, veterans' benefits and health. Another 1 to 4% goes to each of food and agriculture, transportation, labor, science, energy and environment and international affairs. There is some overlap between the mandatory and discretionary categories. The difference is that with each of the discretionary categories, the government may change how much it spends from year to year.

When all the categories of government spending are combined, about a third of total spending goes to Social Security, about a quarter goes to Medicare, about a fifth goes to the military, and most other categories account for 1 to 4% each. Many programs that taxpayers think are major components of the budget, such as foreign aid, government employee pensions and welfare, are actually very minor.

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