The federal budget is the single most consequential document the U.S. government produces each year. It determines which programs get funded and which get cut, who pays taxes and how much, whether the country borrows money and how much, and what the government's actual priorities are regardless of what politicians say they are. Understanding it in plain terms is one of the most useful things a citizen can know.
Where the Money Comes From — Revenue
The federal government raises money primarily through three sources. Individual income taxes account for approximately 49 percent of federal revenue — the taxes Americans pay on their wages, salaries, and investment income each April. Payroll taxes — the Social Security and Medicare taxes taken directly from paychecks — account for approximately 36 percent. Corporate income taxes account for approximately 9 percent. Excise taxes, estate taxes, customs duties, and other sources make up the remainder.
The total amount the federal government collects in a given year is called revenue. In fiscal year 2025, federal revenue was approximately $4.9 trillion.
Where the Money Goes — Spending
Federal spending falls into two broad categories. Mandatory spending is spending required by law — it happens automatically without Congress passing a new appropriations bill each year. Social Security, Medicare, Medicaid, and interest on the national debt are mandatory spending. Together they account for approximately two-thirds of all federal spending.
Discretionary spending is spending that Congress must approve each year through the appropriations process. It includes defense spending — approximately half of all discretionary spending — and everything else: education, transportation, scientific research, foreign aid, environmental protection, law enforcement, housing assistance, and the operating budgets of every federal agency.
The Deficit and the National Debt
When the government spends more than it collects in revenue in a given year, the difference is called the deficit. The government covers the deficit by borrowing money — issuing Treasury bonds that investors, foreign governments, and the Federal Reserve purchase. The total accumulated borrowing over all years is called the national debt.
The national debt currently exceeds $36 trillion. The annual interest payment on that debt — approximately $900 billion in fiscal year 2025 — is now larger than the entire defense budget and is the fastest-growing category of federal spending. Interest payments do not build roads, fund schools, or pay for healthcare. They pay for past borrowing.
The Budget Process
The president is required to submit a budget proposal to Congress each year by the first Monday in February. The budget proposal is a statement of the administration's priorities — but it is only a proposal. Congress is not required to follow it and frequently does not.
Congress is supposed to pass 12 separate appropriations bills by October 1 — the start of the federal fiscal year. In practice Congress has only passed all 12 bills on time four times since 1977. Most years the government operates on continuing resolutions — temporary measures that fund the government at roughly existing levels while negotiations continue. When Congress cannot agree even on a continuing resolution the government shuts down and non-essential federal services stop.
The Congressional Budget Office publishes nonpartisan analysis of the federal budget and major legislation at cbo.gov. The Treasury Department publishes real-time data on federal revenue and spending at fiscaldata.treasury.gov.