The federal government will receive $3.422 trillion in revenue. Most of the taxes are paid by you, either through income or payroll taxes:
- Income taxes contribute $1.622 trillion or 49 percent of total receipts.
- Social Security, Medicare, and other add $1.238 trillion or 36 percent.
- Corporate taxes supply $225 billion or 7 percent.
- Excise taxes and tariffs contribute $152 billion or 4 percent.
- Earnings from the Federal Reserve's holdings add $55 billion or 2 percent. Those are interest payments on the U.S. Treasury debt the Fed acquired through quantitative easing.
- Estate taxes and other miscellaneous revenue supply the remaining 2 percent.
It's estimated that each taxpayer works until late April each year to pay for all federal revenue collected. That's Tax Freedom Day. Can you think of any other purchase you make for which you've worked as hard and long?
The government will spend $4.407 trillion. Most of this, about 62 percent of expenditure, pays for mandated benefits such as Social Security, Medicare, and Medicaid.
Interest on the U.S. debt is $363 billion. The U.S. Treasury must pay it to avoid a U.S. debt default. The United States has been fortunate because interest rates have been low. A worldwide flight to safety increased demand for Treasury notes, lowering rates. Now that the global economy is strengthening, Treasury yields are rising. So will interest payments. Interest on the $21 trillion debt is already the fastest growing federal expense.
The remaining 38 percent of the budget pays for everything else. It's called discretionary spending. The U.S. Congress changes this amount each year. It uses the president's budget as a starting point.
Mandatory spending is $2.739 trillion. Social Security is by far the biggest expense at $1.046 trillion. Medicare is next at $625 billion, followed by Medicaid at $412 billion.
Social Security costs are currently covered 100 percent by payroll taxes and interest on past that have been invested. Until 2010, there was more coming into the Social Security Trust Fund than being paid out. Thanks to interest on investments, the Trust Fund is still running a surplus. But, the Trust Fund’s Board estimates that this surplus will be depleted by 2036. Social Security revenue, from payroll taxes and interest earned, will cover only 77 percent of the benefits promised to retirees.
Medicare is already underfunded. Medicare taxes don't pay for all benefits, so this program relies on general tax dollars to pay for a portion of it. Medicaid is 100 percent funded by the general fund
The discretionary budget is $1.203 trillion. More than half goes toward military spending, including the and other defense-related departments. The rest must pay for all other domestic programs. The largest are Health and Human Services, Education, and Housing and Urban Development.
There is an emergency fund of $111.4 billion that's not included in the budget process. Most of that, amounting to $88.9 billion, goes to Overseas Contingency Operations to pay for wars.
Military spending also includes $181.3 billion for defense-related departments. These include Homeland Security, the State Department, and Veterans Affairs. These departments also receive emergency funding of $18.7 billion. That pays for the war on terror costs triggered by the 9/11 attacks. These include ongoing costs from the war in Iraq and the Afghanistan war.
Congress approved a spending bill of $892.7 billion. It includes $616.9 billion for the DoD base budget, $69 billion for the OCO, and $21.9 billion for the National Nuclear Security Administration within the Department of Energy.
The budget deficit will be $985 billion. That's the difference between $3.422 trillion in revenue and $4.407 trillion in spending. The article on “Deficit by President” shows which U.S. president racked up the highest expenses. A look at the deficit by year will reveal trends in the country’s annual deficits.
07How the Deficit Contributes to the National Debt
Each year, the deficit adds to the U.S. debt. This anticipated tax slows economic growth. It’s like driving a car with the brakes on. It raises interest rates, as investors demand more return. They become hesitant to purchase Treasurys because they fear not being repaid.
Now that the economy has recovered, deficit spending is not necessary. Congress should create a budget surplus to reduce the national debt burden. But it isn’t being done because politicians, who slice popular programs, usually find themselves cut out from the next election.
Congress created the budget process. First, the Executive Office of Management and Budget prepares the budget. The president submits it to Congress on or before the first Monday in February. Congress is supposed to respond with spending appropriation bills that go to the president by June 30. The president has 10 days to reply.
Most important, the deadline for budget approval is September 30. If it isn't approved, the government can shut down, as it did in January 2018 and in 2013. To avoid that, Congress usually passes a continuing resolution. It keeps the government running at spending levels of the last budget. Since the FY 2010 budget, Congress has only followed the budget process twice.
09Compare to Earlier Budgets
U.S. Federal Budget Breakdown
The Budget Components and Impact on the US Economy
Spending is in three categories: Mandatory, which is at $2.739 trillion; Discretionary at $1.305 trillion; and Interest on the National Debt, $363 billion. This article provides a detailed breakdown of each. You can also find links to past budgets at the end.