U.S. Federal Budget Breakdown

The Budget Components and Impact on the US Economy

In fiscal year 2018, the federal budget is $4.094 trillion. The U.S. government estimates it will receive $3.654 trillion in revenue. That creates a $440 billion deficit for October 1, 2017 through September 30, 2018. 

Spending is in three categories: Mandatory ($2.535 trillion), Discretionary ($1.244 trillion) and Interest on the National Debt ($315 billion). This article provides a detailed breakdown of each. You can also find links to past budgets at the end. (Sources: "," Office of Management and Budget, May 23, 2017. "," OMB, July 15, 2016.)

Revenue

US Tax Time
Most of the government's revenue comes from you. Photo: David Freund/Getty Images

The Federal government will receive $3.654 trillion in revenue. Most of the taxes are paid by you, either through income or payroll taxes:

  • Income taxes contribute 50 percent.
  • Social Security, Medicare and other payroll taxes add 33 percent.
  • Corporate taxes supply 10 percent.
  • Excise taxes and tariffs contribute 4 percent.
  • Earnings from the Federal Reserve's holdings add 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 1 percent.

It's estimated that each taxpayer works until 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? More

Spending

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The Federal government spends more than it takes in. Photo: John Kuczala/Getty Images

The government will spend $4.094 trillion. Most of this (62 percent) pays for mandated benefits, such as Social Security, Medicare and Medicaid. 

Interest on the national debt is $315 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 almost $20 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. Congress can change this amount each year. It uses the president's budget as a starting point.  More

Mandatory Spending

The lion's share of Federal spending goes toward mandatory programs. Photo: Getty Images

Mandatory spending is $2.535 trillion. Social Security is by far the biggest expense, at $1.005 trillion. Medicare is next, at $582 billion, followed by Medicaid at $404 billion.

Social Security costs are currently covered 100 percent by payroll taxes and interest on past payroll taxes that has 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. More

Discretionary Spending

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The discretionary budget is $1.244 trillion. More than half goes toward military spending, including the Veterans Affairs and other defense-related departments. The rest must pay for all other domestic programs. The largest are Health and Human Services, Justice, Education and Housing and Urban Development.

There is an emergency fund of $85.3 billion that's not included in the budget process. Most of that ($76.6 nillion) goes to Overseas Contingency Operations to pay for wars. More

Military Spending

Iraq soldier
ISKANDARIYA, IRAQ - JULY 14: Soldiers with the 3rd Armored Cavalry Regiment participate in a patrol on July 14, 2011 in Iskandariya, Babil Province, Iraq. Photo by Spencer Platt/Getty Images

Military spending is budgeted at $824.7 billion. The biggest expense is the Department of Defense base budget, at $574.5 billion. Overseas Contingency Operations will cost $76.6 billion.

Military spending should also include $173.6 billion for defense-related departments. These include Homeland Security, the State Department and Veterans Affairs. For more on military spending, see War on Terror CostsWar in Iraq Costs and Economic Impact of 9/11. More

The Deficit

Trump and Obama
U.S. President Barack Obama speaks while meeting with President-elect Donald Trump (L) following a meeting in the Oval Office November 10, 2016 in Washington, DC. Trump is scheduled to meet with members of the Republican leadership in Congress later today on Capitol Hill. Photo by Win McNamee/Getty Images

The budget deficit will be $440 billion. That's the difference between $3.654 trillion in revenue and $4.094 trillion in spending. For more, see Deficit by President and Deficit by Year. More

How the Deficit Contributes to the National Debt

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Each year's deficit adds to the debt. Photo: Image Source/Getty Images

Each year, the deficit adds to the U.S. debt, already almost $20 trillion. Over the long run, it's a tax on our children and grandchildren. This anticipated tax slows economic growth, like driving a car with the brakes on. That could be one reason why U.S. growth hasn't had a strong recovery since the recession. 

Over the long run, a large debt weakens the dollar. Investors are hesitant to purchase Treasurys, fearing they may not be repaid. A weak dollar has less purchasing power with imports, making them more expensive. That contributes to inflation.

As the economy recovers, deficit spending should be curtailed to reduce the national debt burden. Of course, politicians who slice popular programs are usually cut, themselves, in the next election. More

Budget Process

Trump, Ryan,
President Donald Trump (C) hosts Office of Managment and Budget Director Mick Mulvaney (L) and Republican Congressional leaders (2nd L-R) Rep. Kevin McCarthy (R-CA); Senate Majority Leader Mitch McConnell (R-KY), Speaker of the House Paul Ryan (R-WI) and others during a working lunch in the Roosevelt Room at the White House March 1, 2017 in Washington, DC. The meeting comes the day after Trump layed out his policy priorities during a joint session of Congress. Photo by Chip Somodevilla/Getty Images

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 responds with spending appropriation bills that go to the president by June 30. The president has ten 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 2013. To avoid that, Congress usually passes a continuing resolution. It keeps the government running at spending levels of the last budget. More

Compare to Earlier Budgets

4 Presidents
U.S. President George W. Bush (2R) shakes hands with President-elect Barack Obama (2L), as former President Bill Clinton (R), and former President George H.W. Bush (L) look on in the Oval Office January 7, 2009 in Washington, DC. Photo by Ron Sachs-Pool/Getty Images