The United States has a spending problem that is much larger than foreign aid.
In fiscal year 2025, which ran from October 1, 2024, through September 30, 2025, the federal government collected approximately $5.235 trillion but spent approximately $7.010 trillion.
That left the government with a budget deficit of approximately:
$1.775 trillion
In other words, for every $100 the federal government collected, it spent roughly $134.
The remaining $34 had to be financed primarily by borrowing.
Treasury’s final FY2025 accounts report $5.2346 trillion in budget receipts, $7.0100 trillion in outlays and a $1.7754 trillion deficit.
Where Did the $7 Trillion Go?
The federal budget is dominated by several extremely large programs.
| Category | FY2025 Spending | Share of Federal Spending |
|---|---|---|
| Social Security | $1.581 trillion | 22.5% |
| Medicare | $996.7 billion | 14.2% |
| Health, including Medicaid | $978.9 billion | 14.0% |
| Net Interest on the Debt | $970.4 billion | 13.8% |
| National Defense | $916.6 billion | 13.1% |
| Income Security | $701.6 billion | 10.0% |
| Veterans Benefits & Services | $377.2 billion | 5.4% |
| Transportation | $145.8 billion | 2.1% |
| Natural Resources & Environment | $88.3 billion | 1.3% |
| Administration of Justice | $85.2 billion | 1.2% |
| Community & Regional Development | $84.5 billion | 1.2% |
| Education, Training & Social Services | $71.0 billion | 1.0% |
| Agriculture | $49.4 billion | 0.7% |
| International Affairs | $45.2 billion | 0.6% |
| Science, Space & Technology | $42.1 billion | 0.6% |
| General Government | $34.5 billion | 0.5% |
| Energy | $20.9 billion | 0.3% |
There are also accounting categories such as Commerce and Housing Credit and offsetting receipts that reduce net federal outlays.
The Treasury reports total FY2025 federal outlays of $7.010 trillion.
The most important thing to notice is that America’s budget is overwhelmingly concentrated in a few areas.
Social Security, Medicare, health programs, defense, income-security programs and interest on the debt account for the vast majority of federal spending.
This creates a mathematical problem for anyone trying to balance the budget.
You cannot eliminate a $1.8 trillion deficit simply by cutting a few small federal agencies.
The Most Alarming Number May Be Interest
The United States spent approximately:
$970 billion just on interest
That is more than the entire $917 billion National Defense budget.
And unlike spending on highways, NASA or education, interest doesn’t provide a new government service.
It is largely the cost of financing previous deficits.
Net interest increased from about $881 billion in FY2024 to approximately $970 billion in FY2025—an increase of roughly 10% in a single year.
The Congressional Budget Office expects interest costs to continue increasing as federal debt grows. In its current projections, net interest rises from about $1 trillion in 2026 to approximately $2.1 trillion by 2036.
This creates a vicious cycle:
Deficit → Borrowing → More Debt → More Interest → Bigger Deficit → More Borrowing
That is why reducing today’s deficit can produce much larger benefits over the long term.
What About Foreign Aid?
Foreign aid receives enormous political attention, but it is surprisingly small compared with the overall federal budget.
According to ForeignAssistance.gov data analyzed by Pew Research Center, the United States disbursed approximately:
$47.3 billion in foreign assistance during FY2025
Against a $7.01 trillion federal budget, that represents only about:
0.67% of federal spending
For every $100 Washington spent, approximately 67 cents went to foreign aid.
So even if the United States eliminated every dollar of foreign aid, federal spending would fall from roughly:
$7.010 trillion
to approximately:
$6.963 trillion
The deficit would still be roughly:
$1.73 trillion
Foreign aid therefore cannot be the primary explanation for America’s fiscal problem.
Where Does Foreign Aid Go?
The $47.3 billion was divided among several purposes.
| Foreign-Aid Purpose | FY2025 |
|---|---|
| Health | $10.93 billion |
| Humanitarian Assistance | $8.99 billion |
| Economic Development | $8.17 billion |
| Peace & Security | $7.32 billion |
| Program Support | $5.96 billion |
| Multisector Programs | $2.95 billion |
| Democracy, Human Rights & Governance | $1.60 billion |
| Education & Social Services | $1.09 billion |
| Environment | $304 million |
| Total | $47.32 billion |
Health was actually the largest category of American foreign aid in FY2025—not military assistance.
Health assistance includes programs involving HIV/AIDS, malaria, maternal and child health, infectious diseases, water and sanitation.
Humanitarian assistance includes food, shelter and emergency support following wars and disasters.
Which Countries Received the Most?
The largest individual recipients included:
| Country | FY2025 Foreign Assistance |
|---|---|
| 🇺🇦 Ukraine | $6.70 billion |
| 🇮🇱 Israel | $3.31 billion |
| 🇯🇴 Jordan | $1.65 billion |
| 🇪🇹 Ethiopia | $919 million |
| 🇨🇩 DR Congo | $749 million |
| 🇳🇬 Nigeria | $729 million |
| 🇸🇩 Sudan | $709 million |
| 🇰🇪 Kenya | $651 million |
| 🇲🇿 Mozambique | $582 million |
| 🇺🇬 Uganda | $512 million |
There is an important difference between Ukraine and Israel.
Of Israel’s approximately $3.31 billion, about 99.8% was military assistance.
Ukraine’s recorded FY2025 foreign assistance was approximately 85% nonmilitary and 15% military.
Jordan received a mixture of economic and military assistance.
ForeignAssistance.gov also does not capture every form of U.S. arms sale or military-equipment transfer, so these figures should not be interpreted as the complete value of every defense-related transaction with those countries.
So Where Can America Actually Cut Spending?
If the objective is serious deficit reduction, Congress has to look where the money actually is.
The logical place to begin is with spending that can potentially be reduced without immediately cutting basic Social Security or Medicare benefits for ordinary Americans.
1. Reduce Improper Payments and Fraud
This should be one of the first targets.
The Government Accountability Office estimates that federal agencies reported approximately:
$186 billion in improper payments during FY2025
About $153 billion—82%—were classified as overpayments.
Examples occur in programs such as Medicare, Medicaid, tax credits and other federal benefit systems.
But an important distinction must be made:
Improper payment does not automatically mean fraud.
Some payments are improper because of documentation mistakes, administrative errors, incorrect amounts or eligibility issues.
Therefore, it would be unrealistic to assume that all $186 billion could simply be eliminated.
Nevertheless, stronger identity verification, data matching, eligibility checking, audits and automated fraud detection could potentially save tens of billions of dollars annually.
This is one of the least painful places to begin.
2. Reform Medicare Advantage Payments
Medicare itself is approaching $1 trillion per year, so relatively small percentage improvements can produce enormous savings.
One possible target is the amount the federal government pays private Medicare Advantage plans.
CBO examined an option that would reduce Medicare Advantage benchmarks and estimated approximately:
$489 billion in federal savings over 10 years
The proposal would not simply cut every senior’s Medicare benefit by the same amount. Instead, it primarily changes federal payments to private Medicare Advantage insurers.
There would still be consequences: beneficiaries could receive fewer supplemental benefits or face somewhat higher out-of-pocket costs.
But healthcare payment reform potentially offers much greater savings than eliminating dozens of tiny federal programs.
3. Reform Other Medicare Payments
There are many additional areas within Medicare that Congress could examine.
CBO has studied options involving:
- Medicare Advantage risk-adjustment payments
- hospital outpatient payments
- graduate medical-education payments
- payments for hospital bad debt
- payments involving the 340B drug program
- Medigap cost-sharing rules
Depending on the policy, individual proposals could produce tens or even hundreds of billions of dollars in savings over a decade.
Because Medicare is so large, improving its payment structure by even 5% is financially more significant than eliminating many entire cabinet departments.
4. Defense Spending
America spent approximately:
$917 billion on National Defense in FY2025
National security obviously matters, especially with geopolitical challenges involving China, Russia, Iran, North Korea and terrorism.
But a budget approaching $1 trillion deserves careful scrutiny.
Potential savings could come from:
- Canceling obsolete or lower-priority weapons systems
- Reducing cost overruns
- Reforming military procurement
- Consolidating installations
- Reducing unnecessary overseas deployments
- Replacing some military positions with less expensive civilian workers
- Requiring allies to shoulder more of their own defense burden
- Improving Pentagon auditing and contracting
CBO examined one broad option for reducing the Department of Defense’s annual budget that would save approximately:
$959 billion over 10 years
That would be close to an average of $96 billion per year once fully considered across the decade, although actual yearly savings would differ substantially as the policy phased in.
Cuts of that magnitude would also involve genuine national-security tradeoffs. There is no painless $100 billion defense cut.
5. Reduce Wasteful Agricultural Subsidies
Agriculture spending totaled approximately $49 billion in FY2025.
CBO has examined reducing federal crop-insurance subsidies, estimating approximately:
$47 billion in savings over 10 years
This would shift more agricultural risk from taxpayers back toward farmers and agricultural businesses.
It would not solve the deficit, but it illustrates an important principle:
Federal subsidies should periodically be examined to determine whether they continue to serve a compelling national purpose.
6. Review Federal Grants
The federal government transfers enormous amounts of money to state and local governments.
GAO reports that approximately $1.2 trillion in federal funding went to state and local governments in FY2025 for transportation, education and numerous other programs.
Not all of this is wasteful—far from it.
But grants can create layers of administrative bureaucracy at the federal, state and local levels.
Congress could examine:
- duplicative grant programs
- grants for projects that states could reasonably fund themselves
- outdated programs
- low-performing programs
- programs without measurable outcomes
CBO has identified an illustrative option reducing certain state and local grants that could save approximately $67 billion over 10 years.
7. Reduce Selected Nondefense Discretionary Spending
Transportation, education, environmental programs, federal departments, housing programs and countless smaller programs collectively consume hundreds of billions of dollars.
CBO examined reductions in selected nondefense discretionary programs that could save approximately:
$339 billion over 10 years
That sounds substantial.
But it illustrates how difficult balancing the budget really is.
Even eliminating many visible government programs produces savings that are small compared with a deficit approaching $1.8 trillion every year.
8. Federal Workforce and Administrative Costs
Federal civilian employment, compensation, pensions and administrative overhead should also be examined.
Potential reforms could include:
- reducing unnecessary management layers
- consolidating duplicative agencies
- eliminating vacant or redundant positions
- automating administrative processes
- reducing dependence on expensive contractors
- reviewing pension structures
- improving procurement
- reducing unused federal real estate
CBO estimated that one option limiting annual federal civilian pay adjustments could save approximately $77 billion over a decade.
Again, this helps—but it does not solve a trillion-dollar structural deficit.
9. Medicaid Reform
Federal Medicaid-related health spending is enormous.
Consequently, Medicaid offers potentially large savings—but the human consequences can also be large.
CBO has examined options such as placing caps on federal Medicaid spending.
Depending on the policy structure, CBO estimated potential savings of:
$459 billion to $893 billion over 10 years
Other options involve reducing federal matching rates or restricting certain state financing arrangements.
But those savings do not magically appear.
States would probably respond through some combination of:
- reduced eligibility
- reduced benefits
- lower payments to doctors and hospitals
- increased state taxes
- increased state spending
Therefore, Medicaid cuts should not be described simply as eliminating “waste.”
They involve major policy choices about healthcare for lower-income Americans.
10. Social Security Reform
Social Security is America’s largest federal program:
$1.581 trillion in FY2025
It represents almost 23 cents of every federal dollar spent.
Politically, Social Security is extremely difficult to change—and for good reason. Millions of retirees planned their finances around benefits promised under the existing system.
A reasonable reform strategy therefore might protect current retirees and workers close to retirement while gradually changing benefits for younger, higher-income workers.
CBO has examined options such as:
Reduce future Social Security benefits for high earners
Estimated savings:
$48 billion to $197 billion over 10 years
Gradually raise the full retirement age
Estimated savings:
$95 billion over 10 years
Use a different inflation index for federal benefits
Estimated deficit reduction:
$278 billion over 10 years, including substantial Social Security savings.
None of these changes would be politically easy.
But long-term budget reform becomes extremely difficult if Social Security is permanently excluded from discussion.
11. Interest Cannot Simply Be Cut
There is one nearly $1 trillion category Congress cannot simply slash:
Interest on the debt
The United States has promised bondholders that it will pay principal and interest on Treasury securities.
Refusing to pay would constitute a default and could severely damage the global financial system and America’s creditworthiness.
The way to reduce interest expense is therefore indirect:
Reduce deficits → Borrow less → Slow debt growth → Pay less interest in future years
This is another reason acting sooner matters.
A dollar of spending reduction today can potentially save additional dollars of interest in future decades.
Could We Balance the Budget Through Spending Cuts Alone?
This is where the arithmetic becomes uncomfortable.
FY2025:
Revenue: $5.235 trillion
Spending: $7.010 trillion
Deficit: $1.775 trillion
Balancing the budget immediately without raising any additional revenue would require eliminating roughly:
25% of all federal spending
But even that understates the difficulty.
Approximately $970 billion is interest, which cannot realistically be eliminated immediately.
Removing interest leaves approximately $6.04 trillion of primary federal spending.
To eliminate the $1.775 trillion deficit entirely through cuts to those programs would therefore require cutting roughly:
29% of non-interest federal spending
That would be extraordinary.
It could not realistically be accomplished by eliminating foreign aid, NASA, federal employees, environmental programs and a collection of small agencies.
The arithmetic eventually reaches:
Social Security
Medicare
Medicaid and other health programs
Defense
and other major entitlements.
That is precisely why CBO projects that rising Social Security, Medicare and interest costs will remain major drivers of federal spending and debt over the coming decade.
A More Realistic Strategy
Instead of trying to eliminate the deficit overnight, America could pursue a long-term fiscal-consolidation plan.
Step 1 — Attack waste first
Aggressively reduce:
- improper payments
- fraud
- procurement waste
- unnecessary contractors
- duplicate programs
- administrative overhead
This is the least economically disruptive place to begin.
Step 2 — Reform healthcare payments
Before cutting healthcare eligibility, reform what Medicare and Medicaid pay hospitals, insurance companies, drug companies and other providers.
Because federal healthcare programs approach $2 trillion annually, even modest improvements can save enormous amounts.
Step 3 — Reform defense procurement
Maintain a powerful military while demanding better discipline in weapons acquisition, contracting and overseas commitments.
A 5% efficiency improvement in a $917 billion defense budget is much more meaningful than eliminating dozens of tiny agencies.
Step 4 — Review subsidies
Agriculture, corporate subsidies, energy subsidies, housing subsidies and other targeted benefits should periodically have to justify their existence.
Step 5 — Control discretionary spending growth
Rather than indiscriminately eliminating education, scientific research or infrastructure spending, Congress could require spending growth to remain below nominal GDP growth for an extended period.
The economy would gradually become larger relative to government spending.
Step 6 — Protect current retirees but reform future entitlement growth
Suddenly reducing Social Security or Medicare for an 80-year-old retiree would be both unfair and economically disruptive.
But gradual changes affecting younger generations could include:
- higher retirement ages as life expectancy increases
- somewhat smaller benefits for wealthy retirees
- more progressive benefit formulas
- Medicare payment reform
- income-related Medicare premiums
Small changes implemented decades in advance can have enormous long-term fiscal effects.
Step 7 — Use the savings to reduce debt
This is crucial.
If Washington finds $100 billion in savings and immediately spends $100 billion somewhere else, nothing has been solved.
Savings should reduce borrowing.
Lower borrowing eventually lowers interest payments.
Lower interest payments reduce future deficits.
That creates a positive fiscal cycle:
Lower deficit → Less debt → Less interest → Lower deficit
What Should Not Be Confused With the Main Problem
Foreign aid is a legitimate subject for scrutiny.
Every foreign-aid program should have to demonstrate that it serves American strategic, humanitarian or economic interests.
But mathematically, foreign aid is not America’s primary fiscal problem.
Consider the comparison:
Foreign aid: $47 billion
Interest: $970 billion
Defense: $917 billion
Medicare: $997 billion
Social Security: $1.581 trillion
The United States spent roughly 20 times as much on interest as it did on foreign aid.
It spent roughly 33 times as much on Social Security.
Even eliminating every foreign-aid program would cover only about 2.7% of the FY2025 deficit.
The Real Problem Is Structural
America’s fiscal challenge cannot be blamed on one political party, one president, foreign aid, federal employees or one unpopular government department.
The problem is structural.
The country has made trillions of dollars of commitments to Social Security, Medicare, Medicaid, defense, veterans and other programs while collecting substantially less revenue than necessary to finance all of them.
Borrowing has filled the gap.
Now the interest on that borrowing has itself become one of the government’s largest expenses.
CBO’s projections show why the problem becomes harder if nothing changes: Social Security, Medicare and net interest are expected to grow faster than the economy, while sustained large deficits push federal debt higher.
The Bottom Line
The United States spent approximately $7 trillion in FY2025 while collecting only $5.2 trillion, leaving a deficit of approximately $1.8 trillion.
Foreign aid accounted for only about $47 billion—less than 1% of total federal spending.
Cutting foreign aid may save some money, but it will not come remotely close to balancing the budget.
A serious deficit-reduction program must concentrate on much larger areas:
1. Reduce improper payments and fraud
2. Reform Medicare Advantage and healthcare payments
3. Reduce inefficient defense procurement
4. Eliminate unnecessary subsidies and duplicative programs
5. Control federal administrative and discretionary spending
6. Gradually reform Medicaid
7. Gradually reform Social Security for future beneficiaries, particularly higher-income recipients
8. Use every dollar of genuine savings to reduce borrowing and future interest costs
But there is an uncomfortable truth Americans eventually have to confront:
There is no painless way to eliminate a $1.8 trillion annual deficit.
The small programs are simply too small.
A country cannot permanently spend $7 trillion while collecting $5.2 trillion without accumulating enormous debt.
The question is therefore not whether America must eventually make difficult fiscal choices.
The question is when—and whether those choices are made gradually while policymakers still have flexibility, or later under much greater financial pressure.
