Understanding the U.S. Federal Budget: Where Your Tax Dollars Go

The Scale of the Federal Budget

The U.S. federal government spent approximately $6.8 trillion in fiscal year 2025. To put that in perspective, that’s roughly $20,000 per American or about $53,000 per household. Understanding where this money goes is fundamental to civic literacy.

Two Types of Federal Spending

Mandatory Spending (~65% of the Budget)

Mandatory spending is set by law and continues automatically without annual congressional approval.

Major mandatory programs:

  • Social Security: ~$1.4 trillion (largest single program; retirement, disability, survivor benefits)
  • Medicare: ~$1.0 trillion (health insurance for 65+ and disabled)
  • Medicaid: ~$650 billion (joint federal-state health coverage for low-income Americans)
  • Veterans benefits: ~$180 billion
  • Federal retirement programs: ~$120 billion
  • Interest on the national debt: ~$870 billion (one of the fastest-growing costs)

    • Discretionary Spending (~27% of the Budget)

    Congress must appropriate discretionary funds each year through the annual appropriations process.

    Defense discretionary (~half of discretionary):

  • Military personnel, operations, weapons, and R&D: ~$886 billion

    • Non-defense discretionary (~other half):

  • Education: ~$90 billion
  • Transportation: ~$80 billion
  • Veterans medical care: ~$120 billion
  • Housing and urban development: ~$60 billion
  • Science and space (NASA, NIH, NSF): ~$55 billion
  • International affairs (State Dept, foreign aid): ~$58 billion
  • Environment (EPA, Interior): ~$45 billion
  • Justice (FBI, federal courts): ~$40 billion

    • Revenue (~73% of Spending in FY2025)

    The federal government collected approximately $4.9 trillion in revenue:

  • Individual income taxes: ~$2.5 trillion (largest source, ~51%)
  • Payroll taxes: ~$1.5 trillion (Social Security and Medicare taxes)
  • Corporate income taxes: ~$530 billion
  • Excise taxes: ~$90 billion
  • Other: customs duties, estate taxes, Federal Reserve earnings

    • The Deficit and National Debt

    The Annual Deficit

    When spending exceeds revenue, the government runs a deficit. In FY2025, the deficit was approximately $1.9 trillion.

    The National Debt

    The cumulative total of all annual deficits (minus surpluses) is the national debt, which stands at over $36 trillion in 2026.

  • Debt held by the public: ~$28 trillion (foreign governments, investors, Federal Reserve)
  • Intragovernmental debt: ~$8 trillion (money owed to Social Security trust fund and others)

    • Why Does the Debt Matter?

    The national debt affects:

  • Interest payments (now the third-largest budget item)
  • Future fiscal flexibility
  • Long-term economic growth
  • U.S. credit rating and borrowing costs

    • The Budget Process

  • President submits budget proposal (first Monday in February)
  • Congress drafts its own budget resolution
  • Appropriations committees draft spending bills
  • Both chambers vote and reconcile differences
  • President signs or vetoes

    • If Congress doesn’t pass appropriations bills on time, the government operates under a continuing resolution or faces a government shutdown.

    How to Stay Informed

  • Office of Management and Budget (OMB): whitehouse.gov/omb
  • Congressional Budget Office (CBO): cbo.gov (nonpartisan analysis)
  • USASpending.gov: Explore federal spending data
  • National Priorities Project: nationalpriorities.org (citizen-focused budget education)