The federal government estimated it would 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 payroll taxes 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 anything else for which you've worked as hard and long?
In its budget, the government expected to spend $4.407 trillion. Most of this, about 62 percent of expenditure, pays for mandated benefits such as Social Security, Medicare, and Medicaid.
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.
The budget proposal set mandatory spending at $2.739 trillion. Social Security was by far the biggest expense at $1.046 trillion. Medicare was 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 payroll taxes 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 2032. 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 was set at $1.203 trillion. More than half generally goes toward military spending, including the Department of Veterans Affairs 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 was included in the budget. The biggest expense was the Department of Defense base budget at $597.1 billion. Overseas Contingency Operations were estimated to cost approximately $89 billion.
Military spending included $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.
On September 28, 2018, Congress approved a defense spending bill of $892.7 billion. It includes $616.9 billion for the DoD base budget, $69 billion for the Overseas Contingency Operations, and $21.9 billion for the National Nuclear Security Administration within the Department of Energy.
As per the proposal, 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 Treasury notes 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. It is supposed to follow these four steps:
- 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 10 days to reply.
Since the FY 2010 budget, Congress has only followed the budget process twice.
The hard deadline for budget approval is September 30. If Congress doesn't approve it by then, the government can shut down. It did just that in 2013, January 2018 and in December 2018. To avoid that, Congress usually passes continuing resolutions. They keep the government running at spending levels of the last budget. If the government does shut down, it signals a complete breakdown in the budget process.
09Compare to Earlier Budgets
US Federal Budget Breakdown
The Budget Components and Impact on the US Economy
In February 2018, President Trump released his budget proposal for fiscal year 2019. Under his proposal, the federal budget would be $4.407 trillion. The U.S. government estimates it will receive $3.422 trillion in revenue, creating a $985 billion deficit for October 1, 2018, through September 30, 2019.
To fund the government, Congress must pass appropriations bills before the fiscal year begins on October 1. If Congress does not do so, it creates continuing resolutions to keep government departments operational. In 2018, it passed five out of 12 total appropriations bills. When appropriation bills were not passed on December 21, 2018, parts of the government that did not receive funding were shut down.
In Trump's budget, spending was 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.