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Government spending is broken down into three categories:mandatory spending, discretionary spending, andinterest on the national debt. Each category of spending has different subcategories.
President Joe Biden released a $6.011 trillion federal budget proposal in May 2021 for fiscal year (FY) 2022. TheU.S. government estimatesit will receive $4.174 trillion in revenue through Sept. 30, 2022, creating a $1.837 trillion deficit forOct. 1, 2022.
The Congressional Budget Office (CBO) predictedbefore Biden's budget proposal was released that the 2021 deficit would be $2.3 trillion. It later revised the 2021 deficit figure to $3 trillion as a result of the American Rescue Plan. The CBO also projected a cumulative deficit for 2022-2031 at $12.1 trillion, or an average of $1.2 trillion a year.
In the 2022 federal budget, mandatory spending is budgeted at $4.018 trillion. Discretionary spending is forecasted to be $1.688 trillion. Interest on the national debt is estimated to be $305 billion.
Key Takeaways
- President Biden’s budget for FY 2022 totals $6.011 trillion, eclipsing all other previous budgets.
- Mandatory expenditures, such as Social Security, Medicare, and the Supplemental Nutrition Assistance Program, account for about 65% of the budget.
- Budget expenditures are estimated to exceed federal revenues by $1.873 trillion for FY 2022.
- Most of these revenues come from taxes and earnings from quantitative easing.
Revenue
The federal government estimates it willreceive $4.174trillion inrevenue in FY 2022. Most of this revenue is in the form of taxes paid by taxpayers either through income or payroll taxes. The estimate for each type of revenue is as follows:
- Income taxes contribute $2.039 trillion or nearly 49% of total receipts.
- Social Security, Medicare, and otherpayroll taxesadd $1.462 trillion or 35%.
- Corporate taxessupply $371 billion or nearly 9%.
- Excise taxes, customs,andtariffscontribute $141 billion or a little over 3%.
- Earnings from the Federal Reserve's holdings add $102 billion or a little more than 2%. Those are interest payments on the U.S. Treasury debt the Fed acquired throughquantitative easing.
- Estate taxes and other miscellaneous revenuesupply the remaining 1.5%.
Spending
The government expects tospend$6.011 trillion in 2022. More than 65% of that pays for mandated benefits such as Social Security, Medicare, and Medicaid.
Discretionary spending pays for everything else. It will be $1.688 trillion. TheU.S. Congressappropriates this amount each year using the president's budget as a starting point.
Interest on theU.S. debtis estimated to be $305billion. Interest on the approximate $30trillion federal debt is the fastest-growing federal expense. The CBO expects net federal interest costs to double by 2031 and triple by 2051.
The U.S. Treasury must pay the interest to avoid aU.S. debt default.A debt default by the U.S. has unknown consequences because it has never happened.
Note
The U.S. debt limit hovered at about $28.4 trillion through December 2021, until Congress passed legislation to raise it by an additional $2.5 trillion. It stood at a little more than $30 trillion as of June 24, 2022.
Mandatory Spending
Mandatory spending is estimated to be $4.018 trillion in FY 2022. This category includes entitlement programs such as Social Security, Medicare, and unemployment compensation. It also includes welfare programs such as Medicaid.
Social Security will be the biggest expense, budgeted at $1.196 trillion. It's followed by Medicare at $766 billion and Medicaid at $571 billion.
Social Security costs are usually covered by payroll taxesand interest on investments. There was more coming into theSocial Security Trust Fundthan was being paid out until 2010. In 2021, Social Security benefits paid out exceeded the income from investments for the first time since 1982.
Important
The Social Security Board of Trustees estimates that Social Security's Trust Fund will be depleted by 2033. Social Security revenue from payroll taxes and interest earned will cover only 76% of the benefits promised to retirees.
Medicare is already underfunded because taxes withheld for the program don't pay for all benefits. Congress must use tax dollars to pay for a portion of it. Medicaid is 100%funded by the general fund, also known as "America's Checkbook." This account is used to finance daily activities and long-term operations of the government.
Discretionary Spending
Thediscretionary budgetfor 2022 is $1.688 trillion. Much of it goes toward military spending, includingHomeland Security, the Department of Veterans Affairs,and other defense-related departments. The rest mustpay forallother domestic programs. The largest of these programs are Health and Human Services, Education, and Housing and Urban Development.
The Overseas Contingency Operations fund has historically paid for wars or continuing military actions. The fund is not getting any fund allocation for 2022, as the service budget would cover its operations. A growing portion of the discretionary budget is set aside for disaster relief, such as hurricane and wildfire relief.
Military Spending
Military spendingis included in the budget under discretionary spending. The biggest expense for the military istheDepartment of Defensebase budget, estimated at $715billion.
Note
Budget requests for costs related to the wars in Iraq and Afghanistan have been listed separately in the Overseas Contingency Operations request since 2001. The FY 2022 budget is the first year in which these costs are included in the base budget request.
Military spending includes the Departments of Homeland Security,State, and Veterans Affairs. All of these military costs combined equal $943.9 billion.
The Deficit
Thebudget deficitis estimated at $1.837 trillion. That's the difference between $4.174 trillion in revenue and $6.011 trillion in spending. This shortfall is added to the existing national debt.
Each president and their administration are credited or blamed for increases in national debt due to the budgets their administration proposes. Approval of the budgets is delegated to Congress. The president alone doesn't bear the burden of deficit creation and national debt generation. Other elected officials do as well.
How the Deficit Contributes to the National Debt
Thedeficit adds to the U.S. debt each year. The government issues securities such as Treasury notes, which are purchased by many investors, to raise funds to cover the deficit. Japan and China are two countries whose governments "own" significant amounts of U.S. debt.
Note
An anticipated budget deficit can sloweconomic growth. It influences rising interest rates as investors demand more return. Investors may eventually become hesitant to purchase Treasury notesbecause they fear that the U.S. government may not be able to repay the debt.
The Budget Process
Congress created the budget process in 1974.
TheExecutive Office of Management and Budgetprepares the budget, and this is what the budget process timeline should look like in a given year:
| On or before: | Action required to be completed |
|---|---|
| First Monday in Feb. | President submits his budget. |
| Feb. 15 | CBO submits report to Budget Committees. |
| Six weeks after President's budget submission | House and Senate Committees submit report to Budget Committees |
| April 1 | Senate Budget Committee reports concurrent resolution on the budget. |
| April 15 | Congress completes concurrent resolution on the budget. |
| May 15 | House may consider annual appropriations bills. |
| June 10 | House Appropriations Committee reports last annual appropriation bill. |
| June 15 | Congress completes budget reconciliation. |
| June 30 | House completes action on annual appropriation bills. |
| July 15 | President submits mid-session review of the budget to Congress. |
| October 1 | Fiscal year starts |
Data analyzed by Committee for a Responsible Federal Budget shows that in the 22 years ending 2020, the Congress met its budget deadlines only thrice – with the 2000, 2001, and 2004 budgets.
The process and deadlines within it tend to get ignored due to political disagreements and government inefficiencies.
Note
The government can shut down if Congress doesn't approve the budget on time or come to a consensus on a stopgap funding measure.
Recent government shutdowns have occurred in 2013, in January 2018, and in December 2018. The December shutdown was the longest to date, lasting nearly five weeks from December 21, 2018, through January 25, 2019. Congress usually passes continuing resolutions and stopgap measures to avoid shutdowns.
Frequently Asked Questions (FAQs)
What is the main goal in creating the federal budget?
The federal budget sets government spending priorities and identifies the sources of revenue it will use to pay for those priorities. It's a key tool for executing the agenda of a given administration. The budget process is designed to facilitate cooperation between the White House and Congress in setting these priorities. Often, however, it becomes a source of partisan gridlock.
How does the federal government finance a budget deficit?
The government finances its debt by selling its Treasury notes, bills, and bonds to a variety of creditors, such as individuals, state and local governments, corporations, and foreign governments. This increases the national debt that the federal government must pay back over time.
When was the last time the federal budget was balanced?
The last time the federal budget was balanced was in 2001, when there was actually a surplus.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Congressional Budget Office. "The Budget and Economic Outlook: 2021 to 2031."
Congressional Budget Office. "An Update to the Budget and Economic Outlook: 2021 to 2031."
The White House. “Budget of the U.S. Government, Fiscal Year 2022,” Page 40.
Department of the Treasury. "The Debt to the Penny and Who Holds It," Select "Data Tables."
Congressional Budget Office. "The 2021 Long-Term Budget Outlook."
Congress.gov. “S.J.Res.33 – A Joint Resolution Relating to Increasing the Debt Limit.”
Social Security Administration. "Social Security Board of Trustees: Combined Trust Funds Projected Depletion One Year Sooner Than Last Year."
Bureau of the Fiscal Service. "The General Fund."
Office of the Secretary of Defense. "Fiscal Year (FY) 2022 President’s Budget -Justification for Component Contingency Operations the Overseas Contingency Operation Transfer Fund (OCOTF)," Page 6.
Congressional Research Service. "The Disaster Relief Fund: Overview and Issues," Pages 19-24.
Department of Defense. "The Department of Defense Releases the President’s Fiscal Year 2022 Defense Budget."
Department of the Treasury. "Major Foreign Holders of Treasury Securities."
History, Art and Archives U.S. House of Representatives. "Congressional Budget and Impoundment Control Act of 1974."
The White House. "Office of Management and Budget."
Govinfo.gov. "Congressional Budget and Impoundment Control Act of 1974," Pages 11-12.
Govinfo.gov. "United States Code, 2006 Edition, Supplement 5, Title 31 - Money and Finance," Page 115.
Committee for a Responsible Federal Budget. "Congress Increasingly Fails to Budget."
History, Art and Archives U.S. House of Representatives. "Funding Gaps and Shutdowns in the Federal Government."
Congress.gov. "Summary: H.R.5305 — 117th Congress (2021-2022)."
USAspending.gov. "Federal Deficit Trends Over Time."
I'm a financial analyst with extensive expertise in government spending and budgetary matters. My experience includes analyzing fiscal policies, budget proposals, and economic indicators to provide comprehensive insights into the financial landscape. Now, let's delve into the concepts mentioned in the article about the U.S. federal budget for fiscal year 2022.
1. Categories of Government Spending:
- Mandatory Spending: This includes entitlement programs such as Social Security, Medicare, and Medicaid.
- Discretionary Spending: It covers various government programs, and in this case, military spending, Homeland Security, Department of Veterans Affairs, and other defense-related departments fall under this category.
- Interest on the National Debt: This is the cost of servicing the U.S. Treasury debt, and it's highlighted as a significant and growing federal expense.
2. President Biden's Budget for FY 2022:
- President Biden proposed a federal budget of $6.011 trillion for FY 2022.
- The estimated deficit for Oct. 1, 2022, is $1.837 trillion.
3. Revenue Sources for the U.S. Government:
- The U.S. government expects to receive $4.174 trillion in revenue for FY 2022.
- Major sources of revenue include income taxes, payroll taxes, corporate taxes, excise taxes, customs and tariffs, and earnings from the Federal Reserve's holdings.
4. Spending Breakdown for 2022:
- The government plans to spend $6.011 trillion in 2022.
- Mandatory expenditures, such as Social Security, Medicare, and Medicaid, account for over 65% of the budget.
- Discretionary spending is $1.688 trillion, covering various programs including military spending.
5. Military Spending:
- Military spending is part of discretionary spending and includes the Department of Defense base budget, Homeland Security, State, and Veterans Affairs.
- The total military costs combined equal $943.9 billion.
6. Budget Deficit and National Debt:
- The budget deficit for FY 2022 is estimated at $1.837 trillion.
- The deficit contributes to the national debt, which is the cumulative result of annual deficits.
7. Budget Process and Deadlines:
- The budget process was created in 1974, involving the Executive Office of Management and Budget and Congress.
- There is a timeline for various actions, including the President's budget submission, Congressional reports, and budget reconciliation.
8. Financing a Budget Deficit:
- The government finances its deficit by selling Treasury notes, bills, and bonds to various creditors.
9. Consequences of a Deficit:
- An anticipated budget deficit can slow economic growth, influence rising interest rates, and create concerns among investors about the government's ability to repay debt.
10. Historical Context:
- The last time the federal budget was balanced was in 2001 when there was a surplus.
These concepts provide a comprehensive overview of the U.S. federal budget, its components, and the financial dynamics involved. If you have any specific questions or need further clarification on any of these points, feel free to ask.
