The Federal Budget

The U.S. government spends roughly $6.1 trillion per year , more than the GDP of every country except the U.S. itself. Almost two-thirds of it is on autopilot. Here is how it works.

$6.1T

Total FY2024 Spending

~67%

Mandatory Spending

~28%

Discretionary Spending

$870B

Interest on Debt

Part I

Two Buckets: Mandatory and Discretionary

The federal budget is divided into two fundamentally different categories. Understanding this split is the single most important thing you can know about government spending, because most of the political battles you see on the news are only about one of them.

Mandatory Spending

~$4.1 trillion

Spending required by existing law. Congress does not vote on this every year. It flows automatically based on who qualifies under the law. To change it, Congress must change the underlying statute, a much higher political bar.

›Social Security: ~21% of total budget
›Medicare: ~14% of total budget
›Medicaid + CHIP: ~10% of total budget
›Interest on the national debt: ~14% of total budget
›Other entitlements (SNAP, veterans, etc.): ~8% of total budget

Discretionary Spending

~$1.7 trillion

Spending that Congress appropriates anew every single year through 12 separate appropriations bills. This is what annual budget battles are actually about. If Congress fails to pass appropriations on time, the government shuts down.

›Defense / Military: ~$860B (~14%)
›Non-defense discretionary: ~$840B (~14%)
›Education, housing, transportation, research: Included in non-defense
›Veterans' health (VA): Included in non-defense

The key insight: When politicians fight over the budget, they are typically fighting over the 28% that is discretionary. The other 67%+ is legally automatic. Cutting Social Security or Medicare requires passing a new law, not just losing a budget vote.

Part II

Where the Money Actually Goes

Here is a full breakdown of FY2024 federal spending, translated from budget lines into plain English.

Social Security

$1.47T24% of total

Monthly payments to 67 million retired and disabled Americans and their dependents. Funded by payroll taxes, not general revenue, though the trust fund is drawing down.

Medicare

$869B14% of total

Health coverage for 67 million people over 65 or with qualifying disabilities. Split into Part A (hospital), Part B (outpatient), Part C (Medicare Advantage), and Part D (drugs).

Medicaid + CHIP

$616B10% of total

Health coverage for 90 million low-income adults, children, pregnant women, elderly, and people with disabilities. Joint federal-state program. Feds pay 50-75% depending on the state.

Interest on the National Debt

$870B14% of total

Interest payments on the $34+ trillion national debt. This is now the fastest-growing line item in the federal budget. It exceeded defense spending for the first time in FY2024.

Defense / Military

$860B14% of total

The Department of Defense base budget, nuclear weapons (DOE), and military construction. Does not include Veterans Affairs, intelligence agencies, or military retirement (counted elsewhere).

Non-Defense Discretionary

$840B14% of total

Everything else Congress funds annually: education, housing, transportation, NASA, EPA, FDA, NIH research, foreign aid, federal law enforcement, and more. This is the entire domestic agenda.

Other Mandatory (SNAP, TANF, Veterans, Etc.)

$560B9% of total

Supplemental Nutrition Assistance Program (SNAP/food stamps), TANF (welfare), veterans' compensation, federal employee retirement, Earned Income Tax Credit, and other mandatory programs.

Part III

How the Budget Is Made

The budget process is supposed to follow a defined annual calendar. In practice, it almost never does. Here is both the theory and the reality.

A. The Official Process (Almost Never Happens On Time)

1
President Submits a Budget Request
First Monday in February
The Office of Management and Budget (OMB) compiles a detailed budget proposal on behalf of the President. It is a political statement as much as a financial one: it lists priorities, not law. Congress is not required to follow it. The President's budget often arrives late.
2
Congressional Budget Committees Write a Resolution
April 15 deadline (rarely met)
The House and Senate Budget Committees each draft a 'budget resolution' setting overall spending caps and targets. This is not a law, and the President cannot veto it. It is a framework. When the two chambers agree, it passes as a concurrent resolution.
3
12 Appropriations Subcommittees Go to Work
Spring through summer
The Appropriations Committees in each chamber divide discretionary spending into 12 bills covering different departments (Defense, Labor/HHS, Transportation, etc.). Subcommittees hold hearings, mark up bills, and pass them to the full committees.
4
Full Chambers Vote on Appropriations Bills
Should be done by October 1
Each of the 12 bills must pass both the House and Senate, then be reconciled in a conference committee when the versions differ. The President must sign each one. October 1 is the start of the federal fiscal year.
5
President Signs (or Vetoes)
Before or just after October 1
If all 12 bills are signed, the government is funded. If not, which is the norm, Congress passes a Continuing Resolution (CR) to keep the government open at prior funding levels while negotiations continue.

B. The Reality: CRs, Omnibuses, and Shutdowns

Congress has passed all 12 appropriations bills on time exactly four times since 1977. That is not a typo. The normal operating mode of the federal government is some combination of:

Continuing Resolution (CR)

A stopgap measure that keeps the government funded at prior-year levels while Congress fails to pass the real budget. CRs can last a week or a full year. They freeze programs in place, with no new initiatives, no new hiring, no contract adjustments.

Omnibus Bill

When Congress bundles all 12 unfinished appropriations bills into one massive package (sometimes 4,000+ pages long) and passes it hours before a deadline. Few members have read it. Riders (unrelated provisions) get tucked in. This has become the standard operating procedure.

Government Shutdown

When funding lapses entirely. 'Non-essential' federal workers are furloughed without pay. National parks close. Benefit payments pause. Contractors stop work. The economy loses roughly $2B per week. Shutdowns have happened 14 times since 1981.

C. Reconciliation: The Filibuster Workaround

The most powerful budget tool Congress has is one most people have never heard of: budget reconciliation.

Normal legislation in the Senate requires 60 votes to overcome a filibuster. Budget reconciliation bills can pass with a simple majority of 51 votes. The catch: reconciliation can only be used once per year, only for provisions that directly change spending, revenues, or the debt limit, and cannot add to the long-term deficit (the Byrd Rule).

Major laws passed via reconciliation:

›The 2001 Bush tax cuts (EGTRRA)
›The 2003 Bush dividend and capital gains tax cuts
›The Affordable Care Act fixes (HCERA, 2010)
›The 2017 Tax Cuts and Jobs Act
›The 2021 American Rescue Plan ($1.9T COVID relief)
›The 2022 Inflation Reduction Act

Part IV

The Debt Ceiling

The debt ceiling is one of the most misunderstood concepts in American politics. Here is what it actually is and why it matters.

What It Is

The debt ceiling is a legal limit on how much the federal government can borrow to pay bills it has already incurred. Raising it does not authorize new spending. It allows the Treasury to pay obligations Congress already voted for. Refusing to raise the debt ceiling is like buying a car, having the bill sent home, and then refusing to pay the credit card statement.

The Current Number

The U.S. national debt exceeded $34 trillion in 2024. The debt ceiling has been raised, revised, or suspended 78 times since 1960. It has been raised under every President, Republican and Democrat alike.

Why It Is Used as a Bargaining Chip

Defaulting on U.S. debt would be catastrophic, triggering a global financial crisis, spiking interest rates, and wiping out the economic foundation of the dollar as the world's reserve currency. This is precisely why threatening not to raise it has political leverage. The minority party uses the threat of default to extract spending cuts or policy concessions from the majority.

Extraordinary Measures

When the debt ceiling is hit, the Treasury Secretary can take "extraordinary measures," accounting maneuvers that delay default for weeks or months. These include suspending reinvestment in federal employee pension funds, halting new state and local government series securities, and similar financial engineering. They buy time; they do not solve the problem.

“The full faith and credit of the United States is not a bargaining chip.”
- Treasury Secretary Janet Yellen, 2023

Part V

Deficit vs. Debt: The Difference That Matters

These two terms are routinely confused, including by politicians.

The Deficit

~$1.7 trillion (FY2023)

The annual shortfall: how much more the government spent than it collected in taxes in a single year. The deficit can go up or down year to year based on economic conditions, tax policy, and spending decisions.

Think of it as your household spending $5,000 more than you earned this year.

The Debt

$34+ trillion

The accumulated total of all past deficits minus surpluses. Every year the government runs a deficit, it adds to the debt by borrowing (issuing Treasury bonds). The national debt has grown in almost every year since World War II.

Think of it as your household's total outstanding credit card balance built up over decades.

Who Holds the National Debt?

›Federal Reserve and other U.S. government accounts: ~40%(The government owes money to itself)
›Foreign governments and investors: ~24%(Japan ($1.1T) and China ($860B) are the largest)
›U.S. individual and institutional investors: ~36%(Pension funds, mutual funds, banks, and individuals holding Treasury bonds)

Part VI

Who Actually Decides

Budget decisions involve more actors than most people realize, and real power is concentrated in fewer hands than the official process suggests.

The Appropriations Committees

Highest, on discretionary spending

The most important committees in Congress for day-to-day spending. The 12 subcommittees on each side control the funding for every federal department and agency. Members of these committees are highly sought by lobbyists. They can add or strip specific line items, defund programs, and attach policy riders to funding bills.

The Budget Committees

Medium, sets the framework

Write the budget resolution that sets overall spending targets. Less powerful than Appropriations but important for setting the fiscal contours of a given year.

Leadership (Speaker, Majority Leader, Whips)

High, controls the floor schedule

Leadership decides what comes to the floor for a vote and when. They can block budget bills they don't want members to vote on, or fast-track deals reached in private. Most budget agreements happen in leadership-to-leadership negotiations, not public committee hearings.

The President and OMB

Medium, proposes, does not dispose

The President submits a budget request but cannot spend money Congress hasn't appropriated. However, the White House has significant leverage through veto threats, executive orders, and impoundment (delaying or refusing to spend appropriated funds, though impoundment is heavily restricted by the 1974 Budget Act).

The Congressional Budget Office (CBO)

Structural, the scorekeeper

The nonpartisan referee. CBO 'scores' legislation, telling Congress what it will cost and how it affects the deficit. Bills that CBO says cost too much often die or get restructured. Politicians fight to influence CBO scoring assumptions. Its rulings are not binding, but they shape the entire debate.

Part VII

Interest: The Sleeper Issue

The fastest-growing line item in the federal budget is one almost no one talks about: interest on the national debt.

$352B

FY2021 interest payments

Near-zero interest rate era

$659B

FY2023 interest payments

After rate hikes began

$870B

FY2024 interest payments

Now exceeds defense spending

Interest payments are mandatory. You cannot cut them without defaulting on U.S. debt. As interest rates rose from near-zero in 2021 to over 5% in 2023, the cost of servicing existing debt exploded. The CBO projects interest payments will exceed $1 trillion annually by 2026 and continue rising, crowding out funding for everything else.

Interest on the debt is now the second-largest line item in the federal budget, behind only Social Security. Unlike Social Security, it provides nothing to anyone. It is the price of past decisions.

Part VIII