Budget Decisions

It's Basic Math: Spending - Revenue = Deficit

The federal budget is an expression of our country's values. What we choose to spend money on and how much we spend, who we tax and how we collect, and the borrowing we engage in to make up the difference between the two, all reflect the basic math of national priorities.

Government Spending

The federal budget consists of two types of spending. "Discretionary spending" (national defense, education, transportation) is determined through the annual appropriations process in Congress. "Mandatory spending," the largest programs of which are Social Security and Medicare, essentially run on autopilot under formulas set in law. Interest payments on the national debt are also considered mandatory. Discretionary spending has been steadily shrinking as a share of the budget and now makes up less than a third of all federal spending. 

$3.96 trillion in Fiscal Year 2017

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Minus

Government Revenue

The other piece of the federal budget is its revenue. Most of the government's revenue comes from the taxes that Americans pay on their income. The individual income tax and payroll taxes (including Social Security, Medicare Hospital Insurance, and Unemployment Insurance) are the largest sources of government revenue. Corporate income taxes are a distant third revenue source.

$3.4 trillion in Fiscal Year 2017

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Equals

Annual Budget Deficit

When the government spends more than it takes in, it has to borrow money to make up the difference. In any given year this mismatch equals the budget deficit.

- $559 billion in Fiscal Year 2017

National Debt

If you add up all of the borrowing the U.S, government has done over time you get the national debt, technically called the "gross debt."

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Why the budget process isn't working

There are many signs that public trust has eroded when it comes to confidence in elected leaders’ budgetary decisions, and it is equally clear that budget reforms would help Congress act in a more fiscally responsible manner. Greater public confidence in the budget process will be necessary to make tough choices on our largest fiscal issues. One way to restore the trust of the American people is to reform the system through which Congress spends taxpayer dollars. 

Much of our national debt and chronic deficits result from an underlying structural problem resulting from existing tax and entitlement laws. Therefore, reforming the entitlement system will ultimately be necessary to change America’s fiscal situation, but there are things that can be done immediately to improve the budget process and serve taxpayers more efficiently.

Issue Brief

Understanding the Federal Debt Limit

Tuesday, August 22, 2017

Congress voted in November 2015 to again suspend the federal debt limit. On March 16, 2017, it went back into effect and was set at the level necessary to include all debt racked up prior to that date ($19.808 trillion).

Why you need to be involved in the budget process

Good decision-making in government depends upon an informed electorate, so the most important thing we can do to help guide the budget process towards a more sustainable fiscal future is to educate ourselves about the hard budget decisions that we face as a nation. Take steps to stay informed about the past, present, and future of the federal budget, and then get involved with the effort to inform others and make your voices heard by your elected officials.

Try it yourself

Balance the budget

Try your hand at balancing the federal budget with one of our educational exercises and really understand the difficult trade-offs.

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