The Federal Budget Explained
US Federal Budget October 1, 2018 to September 30, 2019
- Estimated Tax Revenue $3.422 trillion.
- Budgeted Spending $4.407 trillion.
- Shortfall or Deficit $985 billion.
The Federal government will receive $3.422 trillion in revenue.
Most of these 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.
- Estate taxes and other miscellaneous revenue supply, about 2 percent.
Budgeted spending $4.407 trillion
Spending is in three categories:
- Mandatory $2.739 trillion
- Discretionary $1.305 trillion
- Interest on the National Debt $363 billion.
Mandated Spending for benefits $2.739 trillion: (62%)
Social Security is by far the biggest expense, at $1.046 trillion. Medicare is 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. 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.
Discretionary Spending for everything else: $1.203 trillion (38%)
This year’s discretionary budget of $1.203 trillion pays for military spending and everything else. Congress changes this amount each year, using the president's budget as a starting point.
Military spending is budgeted at $886 billion. The biggest expense is the Department of Defense base budget, at $597.1 billion. Overseas Contingency Operations will cost $88.9 billion.
Military spending also includes $181.3 billion for defense-related departments like Homeland Security, the State Department, and Veterans Affairs. These departments also receive emergency funding of $18.7 billion.
The rest of the discretionary budget pays for all other domestic programs including Health and Human Services, Education, and Housing and Urban Development.
Interest on the National Debt: $363 billion
Interest on the national debt is $363 billion and rising. The U.S. Treasury must pay it to avoid a U.S. debt default. The United States has been fortunate because interest rates have been low. Now that the global economy is strengthening interest rates are expected to increase, so will the debt payments.
Budget Deficit: $985 billion
The budget deficit for this fiscal year will be $985 billion. That's the difference between $3.422 trillion in tax revenue and $4.407 trillion in spending.
National Debt: $21 trillion ($21,000,000,000,000)
Each year, the budget deficit is added to the U.S. debt, which already exceeds $21 trillion. Over the long run, it's a massive tax that must eventually be paid by our children and grandchildren.
Carrying this large amount of National Debt also hinders our economic growth, like driving a car with the brakes on. This is one reason why U.S. growth hasn't had a strong recovery from the last recession.
Over the long run, a large debt weakens the dollar. Investors are hesitant to purchase Treasury’s, fearing they may not be repaid. A weak dollar has less purchasing power with imports, making them more expensive. That contributes to inflation.
As the economy recovers, deficit spending should be curtailed to reduce the national debt burden.