The fiscal year (FY) 2020 federal budget outlines U.S. government revenue and spending from October 1, 2019, through September 30, 2020. Revenue was $3.42 trillion less than the $6.55 trillion in spending, creating a record $3.13 trillion deficit.
The deficit is $2 trillion more than the $1.08 trillion budgeted. The president's budget planned to spend $4.79 trillion and take in revenue of $3.71 trillion.
The details below compare actual revenue, spending, and the deficit to the budget. It reveals how the COVID-19 pandemic affected the federal government's plans.
Stages in the Budget Process
There are three stages in the discretionary budget:
- The president's budget request: The president proposes what they would like Congress to appropriate.
- The congressional appropriation: It typically uses the president’s request as a guideline.
- The actual spending occurs.
Out of the $3.42 trillion in revenue, income taxes, at $1.61 trillion, contributed almost half (47%). Income tax receipts were $203 billion lower than the $1.81 trillion budget estimates.
Payroll taxes, including Social Security and Medicare, contributed $1.31 trillion or 38%. Corporate taxes added $212 billion, contributing just 6%.
The remaining $289 billion in revenue comes from excise taxes ($87 billion), customs duties ($69 billion), estate taxes ($18 billion), and other miscellaneous sources ($117 billion).
The federal government spent $6.55 trillion in FY 2020. That's $1.76 trillion more than the $4.79 trillion budgeted. The CARES Act and three other stimulus measures were responsible for most of this increase.
The table below compares the actual FY 2020 spending for major federal departments compared to what was budgeted. It combines both discretionary (agency) outlays with mandatory (benefits) spending.
|Agriculture||$184||$155||Increased food assistance|
|Education||$204||$159||Cut costs for student loans|
|HHS - Medicare||$924||$843||Payroll taxes and premiums fund more than half|
|HHS - Medicaid||$458||$447||Paid out of general fund|
|Homeland Security||$92||$62||FEMA payments|
|Housing and Urban Development||$33||$36|
|Justice||$40||$45||Lags in payments to victims|
|Social Security||$1,154||$1,155||Payroll taxes and Trust Fund investments cover 100%|
|Transportation||$100||$85||CARES Act payments|
|Treasury||$1,152||$701||CARES Act payments|
|Treasury - Interest on the Debt||$523||$576||Low interest rates|
Defense spending is, by far, the largest component of discretionary spending. For 2020, Congress spent $690 billion on the Department of Defense (DoD). That's just the base budget. There's also an Overseas Contingency Operations (OCO) fund and Emergency funding in addition to the base budget.
There are also many other agencies, such as Homeland Security, that have a role in defending America. To really understand U.S. military spending, these must all be added up.
Other agencies that protect our nation include: Veterans Affairs ($218 billion), Homeland Security ($92 billion), the State Department ($33 billion), and the National Nuclear Security Administration in the Department of Energy ($15 billion). That's $374 billion not necessarily accounted for in defense spending.
Interest on the Debt
Interest payments owed on the national debt are $523 billion. That's the interest the Department of the U.S. Treasury must pay. Even though the debt keeps rising, the interest payments remain moderate. That's because interest rates remain low.
The U.S. budget deficit is how much more the federal government spends than it receives in revenue each year. For FY 2020, it was a record $3.13 trillion. That's three times as much as the $984 billion deficit in FY 2019. The increase was due to spending to combat the effects of the COVID-19 pandemic. The 2020 recession also reduced tax receipts.
The FY 2020 deficit was budgeted to be $1.08 trillion. Even before the pandemic, it was the largest budgeted deficit since FY 2011. Congress increased the deficit to pay for record-high levels of military spending.
Government spending has three components: mandatory, discretionary, and interest on the debt.
The mandatory budget estimates how much it will cost to provide certain federal benefits. These include Social Security, Medicare, and Medicaid. All mandatory programs were authorized by previous Acts of Congress. For that reason, the mandatory budget is an estimate, not an appropriation, meaning Congress can't change benefit payments as part of the normal budget process. A new Act of Congress is required to change spending on mandatory programs such as Social Security and Medicare.
Discretionary spending is the part of the budget that Congress appropriates funds for each year.
For example, the Department of Health and Human Services manages Medicare and Medicaid. The department's operations are funded out of the discretionary budget. The benefits that it administers are funded from the mandatory budget.
Frequently Asked Questions (FAQs)
When is it considered good policy for the government to run a budget deficit?
There's not a precise, agreed-upon point at which a government deficit is considered good or bad. Some degree of deficit can be a good thing, because it stimulates economic growth. One general rule of thumb that's fairly widely accepted is that a government should aim to keep its debts below 77% of gross domestic product (GDP). Any time there's a deficit, the debt grows, so that's one way to determine whether a deficit is healthy or not. However, interest rates on the debt play a role, as well. Higher interest rates mean the debt costs more, so that can be a reason to limit the deficit.
How does the government finance a budget deficit?
To cover the deficit, the federal government issues bonds, notes, and other securities. These are bought by entities such as businesses and individuals, or by other government agencies or foreign governments. The government then pays back these securities with interest over time.
What is the purpose of a government budget?
The government budget sets plans for revenues, spending, and borrowing. It reflects a government's priorities and sets a trajectory for how it will manage its resources for that fiscal year. Many of these priorities have a direct impact on the lives of ordinary citizens through public programs and policies.
U.S. Department of the Treasury. "Mnuchin and Vought Release Joint Statement on Budget Results for Fiscal Year 2020."
The White House. “A Budget for America’s Future: FY 2021.” Table S-4. Page 112.
The White House. “A Budget for America’s Future: FY 2021."
U.S. Department of the Treasury. "Final Monthly Treasury Statement," Table 5. Outlays of the U.S. Government, September 2020 and Other Periods.
The White House. “A Budget for America’s Future: FY 2021.” Table S-10. Page 127.
The World Bank. "Finding The Tipping Point—When Sovereign Debt Turns Bad."
TreasuryDirect. "How Does the U.S. Government Borrow Money?"