The Federal Budget

During 1999, the United States Federal Government raised through taxes, fees and other sources more than $1.7 trillion and spend about $1.6 trillion. Money is raised and spent for one-year periods called fiscal years, which run from October 1st to September 30th of each year.

Sources of Revenue

Federal government money is raised primarily through payroll, individual income and corporate taxes. The payroll tax, or Federal Insurance Contributions Act (FICA), is paid in even shares of 7.65% by employees and their employers. This money is used to pay Social Security, Medicare and unemployment benefits. Individual income is taxed at increasingly higher percentages as individual income rises. Corporate profits, estates and capital gains are also taxed.

Federal Government Revenue, 2005
ESTIMATES
REVENUE SOURCE
AMOUNT
% of REVENUE
2006
2007
Income Tax
$927,200,000,000
43.0
$997,600,000
$1,208,500,000

Corporate Income Tax

278,300,000,000
12.9
277,100,000
260,600,000
Social Insurance
794,100,000,000
36.9
841,100,000
884,100,000

  (On-budget)

(216,600,000,000)
-
(231,100,000)
(241,800,000)
  (Off-budget)
(577,500,000,000)
-
(610,000,000)
(642,300,000)
Excise Taxes
73,100,000,000
3.4
73,500,000
74,600,000
Estate and Gift Taxes
24,800,000,000
1.2
27,500,000
23,700,000
Customs Duties
23,400,000,000
1.1
25,900,000
28,100,000
Miscellaneous
33,000,000,000
1.5
42,800,000
48,400,000
TOTAL
$2,153,900,000,000
100.00
$2,285,500,000,000
$2,415,900,000,000
  (On-budget)
(1,576,400,000,000)
(1,675,500,000,000)
(1,773,500,000,000)
  (Off-budget)
(577,500,000,000)
(610,000,000,000)
(642,300,000,000)
Source: Office of Management and Budget, Table S-8

 

Expenditures

Each fiscal year, the government spends money on a wide variety of programs and for a wide variety of purposes. All federal expenditures, however, can be categorized as either discretionary or mandatory. Discretionary expenditures, as the term suggests, can be raised, lowered, kept even or eliminated by the Congress as it sees fit. In contrast, mandatory expenditures must be made and are largely out of the control of the Congress.

Mandatory expenditures include Medicare, Medicaid and Social Security benefits, as well as other benefits that are given to people on the basis of their incomes and needs. These benefits are called means-tested entitlements, because anyone who falls below an established income level (means) is entitled to them. Because individuals are, by law, entitled to these benefits, these expenditures are considered "mandatory." Spending on entitlements accounted for more than half of all federal government spending in FY1998.

Another "mandatory" expenditure in the annual federal budget is interest on the national debt (see below). $184 billion in interest was paid by the federal government in the fiscal year 2005.

FY2005 Federal Spending by Category
ESTIMATES
CATEGORY
AMOUNT
% of BUDGET
2006
2007
Discretionary Spending
National Defense
$473,000,000,000
19.1
$510,000,000,000
$503,000,000,000
Homeland Security
30,000,000,000
1.2
32,000,000,000
34,000,000,000
Other
465,000,000,000
18.8
490,000,000,000
492,000,000,000
Subtotal
$968,000,000,000
39.1
$1,032,000,000,000
$1,029,000,000,000
Mandatory Spending
Social Security
$519,000,000,000
21.1
$550,000,000,000
$581,000,000,000
Medicare &
294,000,000,000
11.9
338,000,000,000
387,000,000,000
Medicaid & SCHIP
187,000,000,000
7.6
198,000,000,000
205,000,000,000
Other
320,000,000,000
12.9
370,000,000,000
320,000,000,000
Subtotal
$1,320,000,000,000
53.5
$1,457,000,000,000
$1,494,000,000,000
Interest Payments
184,000,000,000
7.4
220,000,000,000
247,000,000,000
TOTAL
$2,472,000,000,000
100.0
$2,709,000,000,000
$2,770,000,000,000
  REVENUES
$2,154,000,000,000
$2,285,000,000,000
$2,416,000,000,000
  Deficit
-318,000,000,000
-423,000,000,000
-354,000,000,000
Source: Office of Management and Budget, Table S-11

 

 


Deficits and Debt

Glancing at the revenue and expenditure charts above, you will notice that in 2005, the federal government spent $318 billion more than it brought in. This over-spent money is called a deficit. During each of the preceding thirty-five fiscal years (from 1969 to 2004), the federal government has spent more money than it raised. When the government spends less money, the gap between revenue and expenditures is called a surplus.

When the government spends more money than it raises, it must borrow money from the public (by issuing U.S. Treasury Bonds) or from other federal government accounts, such as the Social Security Trust Fund. The sum of the nation's unpaid deficit spending is the national debt, which currently stands at more than $9 trillion. For the current, to the day and to the penny, national debt, see the U.S. Treasury Department Web Site.

Of the nation's outstanding debt, $5 trillion is owed to private individuals and investors. The other $4 trillion is owed to federal government accounts, such as Social Security and Medicare. Over the last three decades, as the trust accounts for these programs have run large surpluses, money has been borrowed from them to be used for other expenditures. As the Baby Boomers begin to retire after the turn of the Millennium, however, these trust funds face serious financial problems of their own. Current budget debates in Washington center on what to do with current and future federal government budget surpluses and how to preserve Social Security and Medicare.

The Budget Process

The federal budget process is similar to the regular legislative process, but it is also different in some very important ways. First, because the Constitution requires that any bill raising revenue must originate in the House of Representatives, the House has traditionally taken the lead in the budget process.

Another distinctive feature of the budget process is that the President's role is more formalized and, therefore, significant. The Congress, by statute, has required the President to submit a budget to the Congress each year. By doing so, the President establishes the starting point and the framework of the annual budget debate.

The final significant difference between the budget process and the normal legislative process is that there are three distinct stages of federal budget making. First, the Congress passes a Budget which provides the framework for overall federal government taxation and spending for the upcoming year. Then, before any money can be officially appropriated or set aside for a given program or purpose, that program or purpose must be authorized. When a federal program is "authorized" it is legally established, extended or modified. At the same time, procedures for implementing the program and spending money on it are outlined, usually in detail. According to House and Senate rules, only after a program is authorized can money be appropriated for use on that program. The amount of money authorized for a program is generally less than the actual amount appropriated for it.

Appropriations are divided into thirteen areas. A separate appropriations bill must be passed to formally set aside money for spending in each area. The Congress has set April 15th of each year as the deadline for passing a Budget Resolution and October 1st as the deadline for passing all thirteen Appropriations Bills. If the Congress fails to meet the October 1st deadline, as it frequently does, it can pass a "Continuing Resolution" to temporarily fund government agencies and programs until the new appropriations are passed.

Shutting Down the Government

If the Congress does not pass all thirteen Appropriations Bills by October 1st (the beginning of the new fiscal year), it generally passes, and the President signs, a "Continuing Resolution." A Continuing Resolution generally funds agencies and programs for thirty to sixty days at the same level as the previous fiscal year. After the Republican takeover of the House and Senate in 1994, relations between the Congress and the President were rocky. In 1995, when the Congress and President failed to agree on several appropriations bills, Continuing Resolutions kept the government functioning. However, when the last resolution's funding period ran out, the Congress and President allowed the government to be "shut down," and only "essential" functions and services were provided. When the Congress and President reached an agreement, the Appropriations Bills were passed and signed and the government was "reopened." 

Learn More about the Federal Budget

A Citizen's Guide to the Federal Budget OMB
Senate Appropriations Committee
Current Public Debt to the Penny Treasury Department
Frequently Asked Questions Bureau of the Public Debt

Federal Budget Resources

Congressional Budget Office (CBO)
Office of Management & Budget (OMB)
Budget Committee Sites: House & Senate
Appropriations Committee Sites: House & Senate
FY2004 Status of Appropriations Bill
FY2005 Status of Appropriations Bill