Key Takeaways
The Federal Budget
The federal budget is the U.S. government's annual financial plan — a detailed accounting of how much money Washington expects to collect through taxes and other sources, and how it intends to spend that money across programs, agencies, and obligations. Congress writes and passes the budget; the President signs it into law. It shapes everything from military pay to Medicare coverage to the size of your local Social Security office.
Formally, the budget process is governed by the Congressional Budget Act of 1974, which established the framework for budget resolutions, reconciliation bills, and the Congressional Budget Office (CBO) as the nonpartisan fiscal scorekeeper.
Where the Money Comes From: Federal Revenue
The federal government collected approximately $4.4 trillion in revenue in fiscal year 2023, according to the Congressional Budget Office. The vast majority came from three main sources.
Individual income taxes are the largest single source, generating roughly half of all federal revenue. Workers pay a share of their wages — at rates ranging from 10% to 37% depending on income level — and file annual returns with the IRS.
Payroll taxes are the second-largest source, funding Social Security and Medicare. Employees and employers each contribute a set percentage of wages. Self-employed workers pay both shares. These taxes are separate from income taxes and appear as distinct deductions on pay stubs.
Corporate income taxes, excise taxes, and other sources — including estate taxes, customs duties, and Federal Reserve earnings — make up the remainder. Corporate tax revenue has declined as a share of total receipts over several decades, a trend that reflects both legislative changes and shifts in business structures.
$4.4T
Total federal revenue in fiscal year 2023
According to the Congressional Budget Office's fiscal year 2023 budget review.
~65%
Share of spending that is mandatory
CBO and Office of Management and Budget data consistently show mandatory programs representing roughly two-thirds of all federal outlays.
$33T+
U.S. national debt as of late 2023
The U.S. Treasury Department reported the national debt exceeded $33 trillion during fiscal year 2023.
~50%
Federal revenue from individual income taxes
The CBO estimates individual income taxes have consistently provided roughly half of all federal revenue in recent years.
Where the Money Goes: Mandatory Spending
Federal spending is divided into two broad categories, and mandatory spending is by far the larger one. These are programs whose funding levels are set by eligibility formulas written into existing law — Congress does not vote on them annually.
Social Security is the single largest program in the entire federal budget, providing retirement, disability, and survivor benefits to tens of millions of Americans. Benefit amounts are tied to a worker's earnings history and the age at which they claim benefits.
Medicare funds health coverage for Americans 65 and older, as well as certain younger people with disabilities. Medicaid, jointly funded with states, covers low-income individuals and families. Together, these three programs alone account for well over half of all federal outlays.
Interest on the national debt is also classified as mandatory spending — the government must pay bondholders regardless of political negotiations. As debt levels have grown, interest payments have become an increasingly significant budget item, competing directly with other spending priorities.
Where the Money Goes: Discretionary Spending
Discretionary spending is the portion of the budget Congress appropriates through annual legislation — and it is where most of the public political debate happens. It represents roughly one-third of total federal outlays.
Defense spending is the largest discretionary category, covering military personnel, weapons systems, veterans' programs, and overseas operations. The U.S. defense budget is consistently among the largest in the world.
Non-defense discretionary programs cover a wide range of domestic priorities: education funding (including Title I grants to schools and Pell Grants for college students), transportation infrastructure, scientific research, housing assistance, environmental protection, and the operating budgets of federal agencies. For a plain-language overview of what those agencies actually do, see our Federal Agencies quick-reference guide.
Track the Budget in Real Time
The Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) both publish detailed, publicly available reports on federal revenue and spending. The U.S. Treasury's 'Daily Treasury Statement' shows cash flows in near real time. These are free, nonpartisan resources any citizen can use to check the numbers behind the headlines.
Because discretionary spending must be re-approved each year, it is subject to significant swings based on political priorities, economic conditions, and budget negotiations between Congress and the White House.
Deficits, Debt, and What They Mean for Americans
When the government spends more than it collects — which it has in most years for the past two decades — the difference is called the deficit. To cover that gap, the Treasury borrows money by selling government bonds to investors, foreign governments, and U.S. institutions such as pension funds.
Each year's deficit adds to the national debt, which surpassed $33 trillion in 2023. The politics surrounding that debt surface regularly in Washington in the form of debt ceiling standoffs — a recurring and often disruptive feature of fiscal governance. Our explainer on what the debt ceiling actually is covers how that mechanism works and why it matters.
For everyday Americans, deficits and debt translate into concrete effects: upward pressure on interest rates (which affect mortgages, car loans, and credit cards), ongoing debates about benefit levels in Social Security and Medicare, and constraints on future spending flexibility. Understanding the budget is, in this sense, not unlike understanding your own household finances — though unlike a personal spending plan, the federal government can borrow at a scale no household can match.
Budget decisions are ultimately political choices — about whose taxes rise or fall, which programs grow or shrink, and what obligations are passed to future generations. Grasping the basic structure of where the money comes from and where it goes is the foundation for making sense of almost every major policy debate in Washington.