The United States federal budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defense programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects. It has reported that the U.S. is facing a series of long-term financial challenges, as the population of the country ages and healthcare costs continue growing faster than the economy, leading to the debt held by the public (a partial measure of national debt) exceeding GDP by 2030. The United States has the largest external debt in the world and the 14th largest government debt as % of GDP in the world.
The budget document often begins with the President's proposal to Congress recommending funding levels for the next fiscal year, beginning October 1 and ending on September 30 of the year following. The fiscal year refers to the year in which it ends. However, Congress is the body required by law to pass appropriations annually and to submit funding bills passed by both houses to the President for signature. Congressional decisions are governed by rules and legislation regarding the federal budget process. Budget committees set spending limits for the House and Senate committees and for Appropriations subcommittees, which then approve individual appropriations bills to allocate funding to various federal programs.
If Congress fails to pass an annual budget, then several appropriations bills must be passed as "stop gap" measures. After Congress approves an appropriations bill, it is then sent to the President, who may either sign it into law or veto it. A vetoed bill is sent back to Congress, which can pass it into law with a two-thirds majority in each legislative chamber. Congress may also combine all or some appropriations bills into one omnibus reconciliation bill. In addition, the president may request and the Congress may pass supplemental appropriations bills or emergency supplemental appropriations bills.
Several government agencies provide budget data and analysis. These include the Government Accountability Office (GAO), the Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the Treasury Department. These agencies have reported that the federal government is facing many important long-run financing challenges, primarily driven by an aging population, rising interest payments, and spending for healthcare programs like Medicare and Medicaid.
President Trump signed the Tax Cuts and Jobs Act into law in December 2017. CBO forecasts that the 2017 Tax Act will increase the sum of budget deficits (debt) by $2.289 trillion over the 2018-2027 decade, or $1.891 trillion after macro-economic feedback. This is in addition to the $10.1 trillion increase forecast under the CBO June 2017 current law baseline and existing $20 trillion national debt.
During FY2018, the federal government spent $4.11 trillion, up $127 billion or 3.2% vs. FY2017 spending of $3.99 trillion. Spending increased for all major categories and was mainly driven by higher spending for Social Security, net interest on the debt, and defense. Spending as % GDP fell from 20.7% GDP to 20.3% GDP, equal to the 50-year average.
Also during FY2018, the federal government collected approximately $3.33 trillion in tax revenue, up $14 billion or less than 1% versus FY2017. Primary receipt categories included individual income taxes ($1,684B or 51% of total receipts), Social Security/Social Insurance taxes ($1,171B or 35%), and corporate taxes ($205B or 6%). Corporate tax revenues declined by $92 billion or 32% due to the Tax Cuts and Jobs Act. FY 2018 revenues were 16.4% of gross domestic product (GDP), versus 17.2% in FY 2017. Tax revenues averaged approximately 17.4% GDP over the 1980-2017 period. Tax revenues in 2018 were about $275 billion below the CBO January 2017 forecast for 2018, indicating tax revenues would have been considerably higher (and deficits lower) in the absence of the tax cuts.
The budget deficit rose from $666 billion in FY2017 to $779 billion in FY2018, an increase of $113 billion or 17.0%. The 2018 deficit was an estimated 3.9% of GDP, up from 3.5% GDP in 2017. The historical average deficit is 2.9% GDP. During January 2017, just prior to President Trump's inauguration, CBO forecast that the FY 2018 budget deficit would be $487 billion if laws in place at that time remained in place. The $779 billion actual result represents a $292 billion or 60% increase versus that forecast, driven mainly by tax cuts and additional spending.
The following table summarizes several budgetary statistics for the fiscal year 2015-2018 periods as a percent of GDP, including federal tax revenue, outlays or spending, deficits (revenue - outlays), and debt held by the public. With U.S. GDP of about $20 trillion in 2018, 1% of GDP is about $200 billion.
|Variable As % GDP||2015||2016||2017||2018|
|Debt Held by Public||72.5%||76.4%||76.1%||77.8%|
The U.S. Constitution (Article I, section 9, clause 7) states that "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time."
Each year, the President of the United States submits a budget request to Congress for the following fiscal year as required by the Budget and Accounting Act of 1921. Current law (31 U.S.C. § 1105(a)) requires the president to submit a budget no earlier than the first Monday in January, and no later than the first Monday in February. Typically, presidents submit budgets on the first Monday in February. The budget submission has been delayed, however, in some new presidents' first year when the previous president belonged to a different party.
The federal budget is calculated largely on a cash basis. That is, revenues and outlays are recognized when transactions are made. Therefore, the full long-term costs of programs such as Medicare, Social Security, and the federal portion of Medicaid are not reflected in the federal budget. By contrast, many businesses and some other national governments have adopted forms of accrual accounting, which recognizes obligations and revenues when they are incurred. The costs of some federal credit and loan programs, according to provisions of the Federal Credit Reform Act of 1990, are calculated on a net present value basis.
Federal agencies cannot spend money unless funds are authorized and appropriated. Typically, separate Congressional committees have jurisdiction over authorization and appropriations. The House and Senate Appropriations Committees currently have 12 subcommittees, which are responsible for drafting the 12 regular appropriations bills that determine amounts of discretionary spending for various federal programs. Appropriations bills must pass both the House and Senate and then be signed by the president in order to give federal agencies the legal budget authority to spend. In many recent years, regular appropriations bills have been combined into "omnibus" bills.
Congress may also pass "special" or "emergency" appropriations. Spending that is deemed an "emergency" is exempt from certain Congressional budget enforcement rules. Funds for disaster relief have sometimes come from supplemental appropriations, such as after Hurricane Katrina. In other cases, funds included in emergency supplemental appropriations bills support activities not obviously related to actual emergencies, such as parts of the 2000 Census of Population and Housing. Special appropriations have been used to fund most of the costs of war and occupation in Iraq and Afghanistan so far.
Budget resolutions and appropriations bills, which reflect spending priorities of Congress, will usually differ from funding levels in the president's budget. The president, however, retains substantial influence over the budget process through veto power and through congressional allies when the president's party has a majority in Congress.
The amount of budget authority and outlays for a fiscal year usually differ because the government can incur obligations for future years. This means that budget authority from a previous fiscal year can, in many cases, be used for expenditure of funds in future fiscal years; for example, a multi-year contract.
Budget authority is the legal authority provided by federal law to enter into financial obligations that will result in immediate or future outlays involving federal government funds. Outlays refer to the issuance of checks, disbursement of cash or electronic transfer of funds made to liquidate a federal obligation and is usually synonymous with "expenditure" or "spending". The term "appropriations" refers to budget authority to incur obligations and to make payments from the Treasury for specified purposes. Some military and some housing programs have multi-year appropriations, in which their budget authority is specified for several coming fiscal years.
In the congressional budgeting process, an "authorization" (technically the "authorization act") provides the legal authority for the executive branch to act, establishes an account which can receive money to implement the action, and sets a limit on how much money may be expended. However, this account remains empty until Congress approves an "appropriation", which requires the U.S. Treasury to provide funds (up to the limit provided for in the authorization). Congress is not required to appropriate as much money as is authorized.
Congress may both authorize and appropriate in the same bill. Known as "authorization bills", such legislation usually provides for a multi-year authorization and appropriation. Authorization bills are particularly useful when funding entitlement programs (benefits which federal law says an individual has a right to, regardless if any money is appropriated), where estimating the amount of funds to be spent is difficult. Authorization bills are also useful when giving a federal agency the right to borrow money, sign contracts, or provide loan guarantees. In 2007, two-thirds of all federal spending came through authorization bills.
A "backdoor authorization" occurs when an appropriation is made and an agency required to spend the money even when no authorizing legislation has been enacted. A "backdoor appropriation" occurs when authorizing legislation requires an agency to spend a specific amount of money on a specific project within a specific period of time. Because the agency would be violating the law if it did not do so, it is required to spend the money—even if no appropriation has been made. Backdoor appropriations are particularly vexsome because removing the appropriation requires amending federal law, which is often politically impossible to do within a short period of time. Backdoor authorizations and appropriations are sources of significant friction in Congress. Authorization and appropriations committees jealously guard their legislative rights, and the congressional budgeting process can break down when committees overstep their boundaries and are retaliated against.
Several government agencies provide budget data. These include the Government Accountability Office (GAO), the Congressional Budget Office (CBO), the Office of Management and Budget (OMB) and the U.S. Treasury Department. The CBO publishes The Budget and Economic Outlook in January, which covers a ten-year window and is typically updated in August. It also publishes a Long-Term Budget Outlook in July and a Monthly Budget Review. The OMB, which is responsible for organizing the President's budget presented in February, typically issues a budget update in July. The GAO and the Treasury issue Financial Statements of the U.S. Government, usually in the December following the close of the federal fiscal year, which occurs September 30. There is a corresponding Citizen's Guide, a short summary. The Treasury Department also produces a Combined Statement of Receipts, Outlays, and Balances each December for the preceding fiscal year, which provides detailed data on federal financial activities.
Historical tables within the President's Budget (OMB) provide a wide range of data on federal government finances. Many of the data series begin in 1940 and include estimates of the President's Budget for 2018–2023. Additionally, Table 1.1 provides data on receipts, outlays, and surpluses or deficits for 1901–1939 and for earlier multi-year periods. This document is composed of 17 sections, each of which has one or more tables. Each section covers a common theme. Section 1, for example, provides an overview of the budget and off-budget totals; Section 2 provides tables on receipts by source; and Section 3 shows outlays by function. When a section contains several tables, the general rule is to start with tables showing the broadest overview data and then work down to more detailed tables. The purpose of these tables is to present a broad range of historical budgetary data in one convenient reference source and to provide relevant comparisons likely to be most useful. The most common comparisons are in terms of proportions (e.g., each major receipt category as a percentage of total receipts and of the gross domestic product).
The Congressional Budget Office (CBO) projects budget data such as revenues, expenses, deficits, and debt as part of its "Long-term Budget Outlook" which is released annually. The 2014 Outlook included projections for debt through 2039 and beyond. CBO outlined several scenarios that result in a range of outcomes. The "Extended Baseline" scenario and "Extended Alternative Fiscal" scenario both result in a much higher level of debt relative to the size of the economy (GDP) as the country ages and healthcare costs rise faster than the rate of economic growth. CBO also identified scenarios involving significant austerity measures, which maintain or reduce the debt relative to GDP over time.
The sooner austerity steps are taken (e.g., raising revenues or reducing spending or a combination of both), the smaller those changes can be to maintain or reduce the debt level projected in 2039. For example, under the baseline scenario, stabilizing the ratio of debt to GDP at 74% (its current level) would require non-interest spending cuts and/or tax hikes of 1.2% of GDP annually if implemented in 2015, or 1.5% of GDP annually if begun in 2020. To bring the debt-to-GDP ratio back to its 40-year average of 39%, the austerity measures required would be 2.6% GDP if begun in 2015 and 3.2% GDP if begun in 2020. Over the 1974 to 2013 period, federal spending averaged 20.5% GDP and revenue 17.4% GDP. For scale, a 2% GDP reduction in spending would be approximately a 10% spending cut.
During FY2018, the federal government collected approximately $3.33 trillion in tax revenue, up $14 billion or less than 1% versus FY2017. Primary receipt categories included individual income taxes ($1,684B or 51% of total receipts), Social Security/Social Insurance taxes ($1,171B or 35%), and corporate taxes ($205B or 6%). Corporate tax revenues declined by $92 billion or 32% due to the Tax Cuts and Jobs Act. Other revenue types included excise, estate and gift taxes. FY 2018 revenues were 16.4% of gross domestic product (GDP), versus 17.2% in FY 2017. Tax revenues averaged approximately 17.4% GDP over the 1980-2017 period.
During FY2017, the federal government collected approximately $3.32 trillion in tax revenue, up $48 billion or 1.5% versus FY2016. Primary receipt categories included individual income taxes ($1,587B or 48% of total receipts), Social Security/Social Insurance taxes ($1,162B or 35%), and corporate taxes ($297B or 9%). Other revenue types included excise, estate and gift taxes. FY 2017 revenues were 17.3% of gross domestic product (GDP), versus 17.7% in FY 2016. Tax revenues averaged approximately 17.4% GDP over the 1980-2017 period.
Tax revenues are significantly affected by the economy. Recessions typically reduce government tax collections as economic activity slows. For example, tax revenues declined from $2.5 trillion in 2008 to $2.1 trillion in 2009, and remained at that level in 2010. From 2008 to 2009, individual income taxes declined 20%, while corporate taxes declined 50%. At 14.6% of GDP, the 2009 and 2010 collections were the lowest level of the past 50 years.
The federal personal income tax is progressive, meaning a higher marginal tax rate is applied to higher ranges of income. For example, in 2010 the tax rate that applied to the first $17,000 in taxable income for a couple filing jointly was 10%, while the rate applied to income over $379,150 was 35%. The top marginal tax rate has declined considerably since 1980. For example, the top tax rate was lowered from 70% to 50% in 1980 and reached as low as 28% in 1988. The Bush tax cuts of 2001 and 2003, extended by President Obama in 2010, lowered the top rate from 39.6% to 35%. The American Taxpayer Relief Act of 2012 raised the income tax rates for individuals earning over $400,000 and couples over $450,000. There are numerous exemptions and deductions, that typically result in a range of 35–40% of U.S. households owing no federal income tax. The recession and tax cut stimulus measures increased this to 51% for 2009, versus 38% in 2007. In 2011 it was found that 46% of households paid no federal income tax, however the top 1% contributed about 25% of total taxes collected. In 2014, the top 1% paid approximately 46% of the federal income taxes, excluding payroll taxes.
The federal payroll tax (FICA) partially funds Social Security and Medicare. For the Social Security portion, employers and employees each pay 6.2% of the workers gross pay, a total of 12.4%. The Social Security portion is capped at $118,500 for 2015, meaning income above this amount is not subject to the tax. It is a flat tax up to the cap, but regressive overall as it is not applied to higher incomes. The Medicare portion is also paid by employer and employee each at 1.45% and is not capped. Starting in 2013, an additional 0.9 percent more in Medicare taxes was applied to income of more than $200,000 ($250,000 for married couples filing jointly), making it a progressive tax overall.
For calendar years 2011 and 2012, the employee's portion of the payroll tax was reduced to 4.2% as an economic stimulus measure; this expired for 2013. Approximately 65% percent of tax return filers pay more in payroll taxes than income taxes.
The term "tax expenditures" refers to income exclusions, deductions, preferential rates, and credits that reduce revenues for any given level of tax rates in the individual, payroll, and corporate income tax systems. Like conventional spending, they contribute to the federal budget deficit. They also influence choices about working, saving, and investing, and affect the distribution of income. The amount of reduced federal revenues are significant, estimated by CBO at nearly 8% GDP or about $1.5 trillion in 2017, for scale roughly half the revenue collected by the government and nearly three times as large as the budget deficit. Since eliminating a tax expenditure changes economic behavior, the amount of additional revenue that would be generated is somewhat less than the estimated size of the tax expenditure.
CBO reported that the following were among the largest individual (non-corporate) tax expenditures in 2013:
In 2013, CBO estimated that more than half of the combined benefits of 10 major tax expenditures would apply to households in the top 20% income group, and that 17% of the benefit would go to the top 1% households. The top 20% of income earners pay about 70% of federal income taxes, excluding payroll taxes. For scale, 50% of the $1.5 trillion in tax expenditures in 2016 was $750 billion, while the U.S. budget deficit was approximately $600 billion. In other words, eliminating the tax expenditures for the top 20% might balance the budget over the short-term, depending on economic feedback effects.
During FY2018, the federal government spent $4.11 trillion, up $127 billion or 3.2% vs. FY2017 spending of $3.99 trillion. Spending increased for all major categories and was mainly driven by higher spending for Social Security, net interest on the debt, and defense. Spending as % GDP fell from 20.7% GDP to 20.3% GDP, equal to the 50-year average.
During FY2017, the federal government spent $3.98 trillion, up $128 billion or 3.3% vs. FY2016 spending of $3.85 trillion. Major categories of FY 2017 spending included: Healthcare such as Medicare and Medicaid ($1,077B or 27% of spending), Social Security ($939B or 24%), non-defense discretionary spending used to run federal Departments and Agencies ($610B or 15%), Defense Department ($590B or 15%), and interest ($263B or 7%).
Expenditures are classified as "mandatory", with payments required by specific laws to those meeting eligibility criteria (e.g., Social Security and Medicare), or "discretionary", with payment amounts renewed annually as part of the budget process. Around two thirds of federal spending is for "mandatory" programs. CBO projects that mandatory program spending and interest costs will rise relative to GDP over the 2016–2026 period, while defense and other discretionary spending will decline relative to GDP.
Social Security, Medicare, and Medicaid expenditures are funded by more permanent Congressional appropriations and so are considered mandatory spending. Social Security and Medicare are sometimes called "entitlements", because people meeting relevant eligibility requirements are legally entitled to benefits, although most pay taxes into these programs throughout their working lives. Some programs, such as Food Stamps, are appropriated entitlements. Some mandatory spending, such as Congressional salaries, is not part of any entitlement program. Mandatory spending accounted for 59.8% of total federal outlays (net of receipts that partially pay for the programs), with net interest payments accounting for an additional 6.5%. In 2000, these were 53.2% and 12.5%, respectively.
Mandatory spending is expected to continue increasing as a share of GDP. This is due in part to demographic trends, as the number of workers continues declining relative to those receiving benefits. For example, the number of workers per retiree was 5.1 in 1960; this declined to 3.0 in 2010 and is projected to decline to 2.2 by 2030. These programs are also affected by per-person costs, which are also expected to increase at a rate significantly higher than economic growth. This unfavorable combination of demographics and per-capita rate increases is expected to drive both Social Security and Medicare into large deficits during the 21st century. Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation). By one estimate, 70% of the growth in these entitlement expenses over the 2016-2046 period is due to healthcare.
CBO reported that net interest on the public debt was approximately $240 billion in FY2016 (6% of spending), an increase of $17 billion or 8% versus FY2015. A higher level of debt coincided with higher interest rates. During FY2012, the GAO reported a figure of $245 billion, down from $251 billion. Government also accrued a non-cash interest expense of $187 billion for intra-governmental debt, primarily the Social Security Trust Fund, for a total interest expense of $432 billion. GAO reported that even though the national debt rose in FY2012, the interest rate paid declined. Should interest rates rise to historical averages, the interest cost would increase dramatically.
As of January 2012, public debt owned by foreigners has increased to approximately 50% of the total or approximately $5.0 trillion. As a result, nearly 50% of the interest payments are now leaving the country, which is different from past years when interest was paid to U.S. citizens holding the public debt. Interest expenses are projected to grow dramatically as the U.S. debt increases and interest rates rise from very low levels to more typical historical levels.
Intuitively, the annual budget deficit should represent the amount added to the national debt. However, there are certain types of spending ("supplemental appropriations") outside the budget process which are not captured in the deficit computation, which also add to the national debt. Prior to 2009, spending for the wars in Iraq and Afghanistan was often funded through special appropriations excluded from the budget deficit calculation. In FY2010 and prior, the budget deficit and annual change in the national debt were significantly different. For example, the U.S. added $1 trillion to the national debt in FY2008 but reported a deficit of $455 billion. Due to rules changes implemented under President Obama in 2009, the two figures have moved closer together and were nearly identical in 2013 (a CBO reported deficit of $680 billion versus change in debt of $672 billion). For FY2014, the difference widened again, with the CBO reporting a deficit of $483 billion  versus a change in total debt outstanding of $1,086 billion.
The total federal debt is divided into "debt held by the public" and "intra-governmental debt." The debt held by the public refers to U.S. government securities or other obligations held by investors (e.g., bonds, bills and notes), while Social Security and other federal trust funds are part of the intra-governmental debt. As of September 30, 2012 the total debt was $16.1 trillion, with debt held by the public of $11.3 trillion and intragovernmental debt of $4.8 trillion. Debt held by the public as a percentage of GDP rose from 34.7% in 2000 to 40.3% in 2008 and 70.0% in 2012. U.S. GDP was approximately $15 trillion during 2011 and an estimated $15.6 trillion for 2012 based on activity during the first two quarters. This means the total debt is roughly the size of GDP. Economists debate the level of debt relative to GDP that signals a "red line" or dangerous level, or if any such level exists. By comparison, China's budget deficit was 1.6% of its $10 trillion GDP in 2010, with a debt to GDP ratio of 16%.
The CBO reported several types of risk factors related to rising debt levels in a July 2010 publication:
However, since mid to late 2010, the U.S. Treasury has been obtaining negative real interest rates at Treasury security auctions. At such low rates, government debt borrowing saves taxpayer money according to one economist. There is no guarantee that such rates will continue, but the trend has remained falling or flat as of October 2012.
Fears of a fiscal crisis triggered by a significant selloff of U.S. Treasury securities by foreign owners such as China and Japan did not materialize, even in the face of significant sales of those securities during 2015, as demand for U.S. securities remained robust.
Economist Martin Wolf explained in July 2012 that government fiscal balance is one of three major financial sectoral balances in the U.S. economy, the others being the foreign financial sector and the private financial sector. The sum of the surpluses or deficits across these three sectors must be zero by definition. Since the foreign and private sectors are in surplus, the government sector must be in deficit.
Wolf argued that the sudden shift in the private sector from deficit to surplus due to the global economic conditions forced the government balance into deficit, writing: "The financial balance of the private sector shifted towards surplus by the almost unbelievable cumulative total of 11.2 per cent of gross domestic product between the third quarter of 2007 and the second quarter of 2009, which was when the financial deficit of US government (federal and state) reached its peak...No fiscal policy changes explain the collapse into massive fiscal deficit between 2007 and 2009, because there was none of any importance. The collapse is explained by the massive shift of the private sector from financial deficit into surplus or, in other words, from boom to bust."
Economist Paul Krugman also explained in December 2011 the causes of the sizable shift from private sector deficit to surplus: "This huge move into surplus reflects the end of the housing bubble, a sharp rise in household saving, and a slump in business investment due to lack of customers."
Fiscal year 2018 (FY 2018) ran from October 1, 2017 through September 30, 2018. It was the first fiscal year budgeted by President Trump. The Treasury department reported on October 15, 2018 that the budget deficit rose from $666 billion in FY2017 to $779 billion in FY2018, an increase of $113 billion or 17.0%. In dollar terms, tax receipts increased 0.4%, while outlays increased 3.2%. Revenue fell from 17.2% GDP in 2017 to 16.4% GDP in 2018, below the 50-year average of 17.4%. Outlays fell from 20.7% GDP in 2017 to 20.3% GDP in 2018, equal to the 50-year average. The 2018 deficit was an estimated 3.9% of GDP, up from 3.5% GDP in 2017.
CBO reported that corporate income tax receipts fell by $92 billion or 31% in 2018, falling from 1.5% GDP to 1.0% GDP, approximately half the 50-year average. This was due to the Tax Cuts and Jobs Act. This accounted for much of the $113 billion deficit increase in 2018.
During January 2017, just prior to President Trump's inauguration, CBO forecast that the FY 2018 budget deficit would be $487 billion if laws in place at that time remained in place. The $779 billion actual result represents a $292 billion or 60% increase versus that forecast. This difference was mainly due to the Tax Cuts and Jobs Act, which took effect in 2018, and other spending legislation.
In January 2017, the Congressional Budget Office reported its baseline budget projections for the 2018-2027 time periods, based on laws in place as of the end of the Obama administration. CBO forecasted that the sum of annual deficits (or increase in "debt held by the public") would be $9.4 trillion. These increases are primarily driven by an aging population, which impacts the costs of Social Security and Medicare, along with interest on the debt.
As President Trump introduces his budgetary policies, the impact can be measured against this baseline forecast. For example, CBO forecast in April 2018 that the debt increase for the 2018-2027 period would be $11.7 trillion if laws in place as of April 2018 were continued into the future (i.e., CBO April 2018 current law baseline). This was an increase of $2.3 trillion or 24% from the January 2017 baseline forecast; changes were mainly due to the Tax Cuts and Jobs Act. CBO also provided an alternate scenario in April 2018 assuming current policies continue, which assumed that individual income tax cuts scheduled to expire in 2025 would be extended. The debt addition forecast in the alternate scenario is $13.7 trillion, a $4.3 trillion or 45% increase versus the January 2017 baseline.
CBO also estimated that if policies in place as of the end of the Obama administration continued over the following decade, real GDP would grow at approximately 2% per year, the unemployment rate would remain around 5%, inflation would remain around 2%, and interest rates would rise moderately. President Trump's economic policies can also be measured against this baseline.
The CBO estimated the impact of Trump's tax cuts and separate spending legislation over the 2018–2028 period in their annual "Budget & Economic Outlook", released in April 2018:
The Congressional Budget Office (CBO) reports its Long-Term Budget Outlook annually, providing at least two scenarios for spending, revenue, deficits, and debt. The 2014 Outlook mainly covers the 25-year period through 2039. The "extended baseline scenario" assumes that the laws currently on the books will be implemented, for the most part. CBO reported in July 2014 that under this scenario: "If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely. By 2039, the deficit would equal 6.5 percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except 1946—even without factoring in the economic effects of growing debt."
The "extended alternative fiscal scenario" assumes the continuation of present trends, which result in a more unfavorable debt position and adverse economic consequences relative to the baseline scenario. CBO reported in July 2014 that under this scenario: "[C]ertain policies that are now in place but are scheduled to change under current law are assumed to continue, and some provisions of current law that might be difficult to sustain for a long period are assumed to be modified. Under that scenario, deficits excluding interest payments would be about $2 trillion larger over the first decade than those under the baseline; subsequently, such deficits would be larger than those under the extended baseline by rapidly increasing amounts, doubling as a percentage of GDP in less than 10 years. CBO projects that real GNP in 2039 would be about 5 percent lower under the extended alternative fiscal scenario than under the extended baseline with economic feedback, and that interest rates would be about three-quarters of a percentage point higher. Reflecting the budgetary effects of those economic developments, federal debt would rise to 183 percent of GDP in 2039."
Over the long-term, CBO projects that interest expense and mandatory spending categories (e.g., Medicare, Medicaid and Social Security) will continue to grow relative to GDP, while discretionary categories (e.g., Defense and other Cabinet Departments) continue to fall relative to GDP. Debt is projected to continue rising relative to GDP under the above two scenarios, although the CBO did also offer other scenarios that involved austerity measures that would bring the debt to GDP ratio down.
CBO estimated under the baseline scenario that the U.S. debt held by the public would increase approximately $8.5 trillion between the end of 2014 and 2024. Under a $2 trillion deficit reduction scenario during that first decade, federal debt held by the public in 2039 would stand at 75 percent of GDP, only slightly above the value of 72 percent at the end of 2013. Under a $4 trillion deficit reduction scenario for that decade, federal debt held by the public would fall to 42 percent of GDP in 2039. By comparison, such debt was 35 percent of GDP in 2007 and has averaged 39 percent of GDP during the past 40 years.
CBO reported in September 2011: "The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying. Citizens will either have to pay more for their government, accept less in government services and benefits, or both."
Many of the debates surrounding the United States federal budget center around competing macroeconomic schools of thought. In general, Democrats favor the principles of Keynesian economics to encourage economic growth via a mixed economy of both private and public enterprise, a welfare state, and strong regulatory oversight. Conversely, Republicans generally support applying the principles of either laissez-faire or supply-side economics to grow the economy via small government, low taxes, limited regulation, and free enterprise. Debates have surrounded the appropriate size and role of the federal government since the founding of the country. These debates also deal with questions of morality, income equality, and intergenerational equity. For example, Congress adding to the debt today may or may not enhance the quality of life for future generations, who must also bear the additional interest and taxation burden.
Political realities make major budgetary deals difficult to achieve. While Republicans argue conceptually for reductions in Medicare and Social Security, they are hesitant to actually vote to reduce the benefits from these popular programs. Democrats on the other hand argue conceptually for tax increases on the wealthy, yet may be hesitant to vote for them because of the effect on campaign donations from the wealthy. The so-called budgetary "grand bargain" of tax hikes on the rich and removal of some popular tax deductions in exchange for reductions to Medicare and Social Security is therefore elusive.
President Trump signed the Tax Cuts and Jobs Act into law in December 2017. CBO forecasts that the 2017 Tax Act will increase the sum of budget deficits (debt) by $2.289 trillion over the 2018-2027 decade, or $1.891 trillion after macro-economic feedback. This is in addition to the $10.1 trillion increase forecast under the June 2017 policy baseline and existing $20 trillion national debt. The Tax Act will reduce spending for lower income households while cutting taxes for higher income households, as CBO reported on December 21, 2017: "Overall, the combined effect of the change in net federal revenue and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units."
CBO forecast in January 2017 (just prior to Trump's inauguration) that revenues in fiscal year 2018 would be $3.60 trillion if laws in place as of January 2017 continued. However, actual 2018 revenues were $3.33 trillion, a shortfall of $270 billion (7.5%) relative to the forecast. This difference is primarily due to the Tax Act. In other words, revenues would have been considerably higher in the absence of the tax cuts.
The CBO has consistently reported since 2010 that the Patient Protection and Affordable Care Act (also known as "Obamacare") would reduce the deficit, as its tax increases and reductions in future Medicare spending offset its incremental spending for subsidies for low-income households. The CBO reported in June 2015 that repeal of the ACA would increase the deficit between $137 billion and $353 billion over the 2016–2025 period in total, depending on the impact of macroeconomic feedback effects. In other words, ACA is a deficit reducer, as its repeal would raise the deficit.
The Medicare Trustees provide an annual report of the program's finances. The forecasts from 2009 and 2015 differ materially, mainly due to changes in the projected rate of healthcare cost increases, which have moderated considerably. Rather than rising to nearly 12% GDP over the forecast period (through 2080) as forecast in 2009, the 2015 forecast has Medicare costs rising to 6% GDP, comparable to the Social Security program.
The increase in healthcare costs is one of the primary drivers of long-term budget deficits. The long-term budget situation has considerably improved in the 2015 forecast versus the 2009 forecast per the Trustees Report.
U.S. healthcare costs were approximately $3.2 trillion or nearly $10,000 per person on average in 2015. Major categories of expense include hospital care (32%), physician and clinical services (20%), and prescription drugs (10%). U.S. costs in 2016 were substantially higher than other OECD countries, at 17.2% GDP versus 12.4% GDP for the next most expensive country (Switzerland). For scale, a 5% GDP difference represents about $1 trillion or $3,000 per person. Some of the many reasons cited for the cost differential with other countries include: Higher administrative costs of a private system with multiple payment processes; higher costs for the same products and services; more expensive volume/mix of services with higher usage of more expensive specialists; aggressive treatment of very sick elderly versus palliative care; less use of government intervention in pricing; and higher income levels driving greater demand for healthcare. Healthcare costs are a fundamental driver of health insurance costs, which leads to coverage affordability challenges for millions of families. There is ongoing debate whether the current law (ACA/Obamacare) and the Republican alternatives (AHCA and BCRA) do enough to address the cost challenge.
In the wake of the 2007–2009 U.S. recession, there were several important fiscal debates around key questions:
According to a December 2012 Pew Research Center poll, only a few of the frequently discussed deficit reduction ideas have majority support:
Fewer than 50% support raising the retirement age for Social Security or Medicare, reducing military defense spending, limiting the mortgage interest deduction, or reducing federal funding for low income persons, education and infrastructure.
There are a variety of proposed strategies for reducing the federal deficit. These may include policy choices regarding taxation and spending, along with policies designed to increase economic growth and reduce unemployment. For example, a fast-growing economy offers the win-win outcome of a larger proverbial economic pie, with higher employment and tax revenues, lower safety net spending and a lower debt-to-GDP ratio. However, most other strategies represent a tradeoff scenario in which money or benefits are taken from some and given to others. Spending can be reduced from current levels, frozen, or the rate of future spending increases reduced. Budgetary rules can also be implemented to manage spending. Some changes can take place today, while others can phase in over time. Tax revenues can be raised in a variety of ways, by raising tax rates, the scope of what is taxed, or eliminating deductions and exemptions ("tax expenditures"). Regulatory uncertainty or barriers can be reduced, as these may cause businesses to postpone investment and hiring decisions.
The CBO reported in January 2017 that: "The effects on the federal budget of the aging population and rapidly growing health care costs are already apparent over the 10-year horizon—especially for Social Security and Medicare—and will grow in size beyond the baseline period. Unless laws governing fiscal policy were changed—that is, spending for large benefit programs was reduced, increases in revenues were implemented, or some combination of those approaches was adopted—debt would rise sharply relative to GDP after 2027."
During June 2012, Federal Reserve Chair Ben Bernanke recommended three objectives for fiscal policy: 1) Take steps to put the federal budget on a sustainable fiscal path; 2) Avoid unnecessarily impeding the ongoing economic recovery; and 3) Design tax policies and spending programs to promote a stronger economy.
President Barack Obama stated in June 2012: "What I've said is, let's make long-term spending cuts; let's initiate long-term reforms; let's reduce our health care spending; let's make sure that we've got a pathway, a glide-path to fiscal responsibility, but at the same time, let's not under-invest in the things that we need to do right now to grow. And that recipe of short-term investments in growth and jobs with a long-term path of fiscal responsibility is the right approach to take for, I think, not only the United States but also for Europe."
A variety of government task forces, expert panels, private institutions, politicians, and journalists have made recommendations for reducing the deficit and slowing the growth of debt. Several organizations have compared the future impact of these plans on the deficit, debt, and economy. One helpful way of measuring the impact of the plans is to compare them in terms of revenue and expense as a percentage of GDP over time, in total and by category. This helps illustrate how the different plan authors have prioritized particular elements of the budget.
There is significant debate regarding the urgency of addressing the short-term and long-term budget challenges. Prior to the 2008-2009 U.S. recession, experts argued for steps to be put in place immediately to address an unsustainable trajectory of federal deficits. For example, Fed Chair Ben Bernanke stated in January 2007: "The longer we wait, the more severe, the more draconian, the more difficult the objectives are going to be. I think the right time to start was about 10 years ago."
However, experts after the 2008-2009 U.S. recession argued that longer-term austerity measures should not interfere with measures to address the short-term economic challenges of high unemployment and slow growth. Ben Bernanke wrote in September 2011: "...the two goals--achieving fiscal sustainability, which is the result of responsible policies set in place for the longer term, and avoiding creation of fiscal headwinds for the recovery--are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the long term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives."
IMF managing director Christine Lagarde wrote in August 2011: "For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation [deficit reduction] plans. At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow. Shaping a Goldilocks fiscal consolidation is all about timing. What is needed is a dual focus on medium-term consolidation and short-term support for growth and jobs. That may sound contradictory, but the two are mutually reinforcing. Decisions on future consolidation, tackling the issues that will bring sustained fiscal improvement, create space in the near term for policies that support growth and jobs."
The budget year runs from October 1 to September 30 the following year and is submitted by the President to Congress prior to October for the following year. In this way the budget of 2013 is submitted before the end of September 2012. This means that the budget of 2001 was submitted by Bill Clinton and was in force during most of George W. Bush's first year in office. The budget submitted by George W. Bush in his last year in office was the budget of 2009, which was in force through most of Barack Obama's first year in office.
The President's budget also contains revenue and spending projections for the current fiscal year, the coming fiscal years, as well as several future fiscal years. In recent years, the President's budget contained projections five years into the future. The Congressional Budget Office (CBO) issues a "Budget and Economic Outlook" each January and an analysis of the President's budget each March. CBO also issues an updated budget and economic outlook in August.
Actual budget data for prior years is available from the Congressional Budget Office; see the "Historical Budget Data" links on the main page of "The Budget and Economic Outlook". and from the Office of Management and Budget (OMB).
One of the best ways to understand the long-term budget risks is through helpful charts. The following sources contain charts and commentary:
The 1993 United States federal budget is the United States federal budget to fund government operations for the fiscal year 1993, which was October 1992 – September 1993. This budget was the final federal budget submitted by George H.W. Bush before he was defeated by Bill Clinton in the United States presidential election, 1992.1994 United States federal budget
The 1994 United States federal budget is the United States federal budget to fund government operations for the fiscal year 1994, which was October 1993 – September 1994. This budget was the first federal budget submitted by Bill Clinton.1995 United States federal budget
The 1995 United States federal budget is the United States federal budget to fund government operations for the fiscal year 1995, which was October 1994 – September 1995. This budget was the last to be submitted before the Republican Revolution in the 1994 midterm elections.1995–96 United States federal government shutdowns
The United States federal government shutdowns of 1995 and 1995–96 were the result of conflicts between Democratic President Bill Clinton and the Republican Congress over funding for education, the environment, and public health in the 1996 federal budget. The shutdowns lasted from November 14 through November 19, 1995, and from December 16, 1995, to January 6, 1996, for 5 and 21 days, respectively.
The first shut down occurred after Clinton vetoed the spending bill the Republican-controlled Congress sent him, as Clinton opposed the budget cuts favored by Speaker of the House Newt Gingrich and other Republicans. The first budget shutdown ended after Congress passed a temporary budget bill, but the government shut down again after Republicans and Democrats were unable to agree on a long-term budget bill. The second shutdown ended with congressional Republicans accepting Clinton's budget proposal. The first of the two shutdowns caused the furlough of about 800,000 workers, while the second caused about 284,000 workers to be furloughed.Polling generally showed that most respondents blamed congressional Republicans for the shutdowns, and Clinton's handling of the shutdowns may have bolstered his ultimately successful campaign in the 1996 presidential election. The second of the two shutdowns was the longest government shutdown in U.S. history until the 2018–2019 government shutdown surpassed it in January 2019.1997 United States federal budget
The United States Federal Budget for Fiscal Year 1997, was a spending request by President Bill Clinton to fund government operations for October 1996-September 1997. Figures shown in the spending request do not reflect the actual appropriations for Fiscal Year 1997, which must be authorized by Congress. The requested budget was submitted to Congress on February 5, 1996.1999 United States federal budget
The Budget of the United States Government Fiscal Year 1999 (FY99) was a spending request by President Bill Clinton to fund government operations for October 1998–September 1999. It was the first balanced Federal budget in 30 years. In FY99, revenues were 1.82 trillion dollars. Spending was 1.70 trillion dollars, the surplus was $124 billion, and the GDP was 9.2 trillion.2004 United States federal budget
The 2004 United States Federal Budget began as a proposal by President George W. Bush to fund government operations for October 1, 2003 – September 30, 2004.
The requested budget was submitted to the 108th Congress on February 3, 2003.2006 United States federal budget
The 2006 United States Federal Budget began as a proposal by President George W. Bush to fund government operations for October 1, 2005 – September 30, 2006.
The requested budget was submitted to the 109th Congress on February 7, 2005.The government was initially funded through a series of three temporary continuing resolutions. Final funding for the government was enacted as several appropriations bills enacted between August 2 and December 30, 2005. As of 2018, this is the last fiscal year to be funded without the use of an omnibus spending bill or full-year continuing resolution.2007 United States federal budget
The budget of the United States government for fiscal year 2007 was produced through a budget process involving both the legislative and executive branches of the federal government. While the Congress has the constitutional "power of the purse," the President and his appointees play a major role in budget deliberations. Since 1976, the federal fiscal year has started on October 1 of each year.
The government was initially funded through a series of three temporary continuing resolutions. Final funding for the Department of Defense was enacted on September 29, 2006 as part of the Department of Defense Appropriations Act, 2007, while the Department of Homeland Security was funded through the Department of Homeland Security Appropriations Act, 2007, enacted on October 4, 2006. The remaining departments and agencies were funded as part of a full-year continuing resolution, the Revised Continuing Appropriations Resolution, 2007, on February 15, 2007.2008 United States federal budget
The 2008 United States Federal Budget began as a proposal by President George W. Bush to fund government operations for October 1, 2007 – September 30, 2008.
The requested budget was submitted to the 110th Congress on February 5, 2007.The government was initially funded through a series of four temporary continuing resolutions. Final funding for the Department of Defense was enacted on November 13, 2007 as part of the Department of Defense Appropriations Act, 2008, while the remaining departments and agencies were funded as part of an omnibus spending bill, the Consolidated Appropriations Act, 2008, on December 26, 2007.2009 United States federal budget
The United States federal budget for fiscal year 2009 began as a spending request submitted by President George W. Bush to the 110th Congress. The final resolution written and submitted by the 110th Congress to be forwarded to the President was approved by the House on June 5, 2008.The government was initially funded through three temporary continuing resolutions. Final funding for the Department of Defense, Department of Homeland Security, and Department of Veterans Affairs was enacted on September 30, 2008 as part of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, while the remaining departments and agencies were funded as part of an omnibus spending bill, the Omnibus Appropriations Act, 2009, on March 10, 2009.2010 United States federal budget
The United States Federal Budget for Fiscal Year 2010, titled A New Era of Responsibility: Renewing America's Promise, is a spending request by President Barack Obama to fund government operations for October 2009–September 2010. Figures shown in the spending request do not reflect the actual appropriations for Fiscal Year 2010, which must be authorized by Congress.
The government was initially funded through two temporary continuing resolutions. Final funding for the government was enacted as an omnibus spending bill, the Consolidated Appropriations Act, 2010, on December 16, 2009.2012 United States federal budget
The 2012 United States federal budget was the budget to fund government operations for the fiscal year 2012, which lasted from October 1, 2011 through September 30, 2012. The original spending request was issued by President Barack Obama in February 2011. That April, the Republican-held House of Representatives announced a competing plan, The Path to Prosperity, emboldened by a major victory in the 2010 Congressional elections associated with the Tea Party movement. The budget plans were both intended to focus on deficit reduction, but differed in their changes to taxation, entitlement programs, defense spending, and research funding.The House resolution did not pass the Senate, nor did the Senate pass a resolution of their own, so there was no 2012 budget of record. The actual appropriations bills for Fiscal Year 2012 included four continuing resolutions and three full-year appropriations bills enacted in November and December 2011, in accordance with the United States budget process. These appropriations were greatly affected by the Budget Control Act of 2011, passed in August 2011 as a resolution to the debt-ceiling crisis; it mandated budget cuts over a ten-year period beginning with Fiscal Year 2012. In addition, legislation was passed to extend a cut in the Social Security payroll tax for the entirety of calendar year 2012.
The government was initially funded through five temporary continuing resolutions. Final funding for the government was enacted as an omnibus spending bill, the Consolidated Appropriations Act, 2012, on December 23, 2011.2013 United States federal budget
The 2013 United States federal budget is the budget to fund government operations for the fiscal year 2013, which is October 2012–September 2013. The original spending request was issued by President Barack Obama in February 2012.The Budget Control Act of 2011 mandates caps on discretionary spending, which under current law will be lowered beginning in January 2013 to remove $1.2 trillion of spending over the following ten years. In addition, several temporary tax cuts were scheduled to expire at the beginning of the 2013 calendar year, including the 2001 and 2003 Bush tax cuts on income, capital gains, and estate tax, which had been extended in a 2010 tax deal, as well as a payroll tax cut that began as a result of the 2010 deal and had been most recently extended in an early 2012 tax deal. The combination of sudden spending cuts and tax increases has led to concerns about significant negative effects on the economy in the wake of the weak recovery from the recession that began in 2007.
The government was initially funded through a single temporary continuing resolution. Final funding for the government was enacted on March 26, 2013 as the Consolidated and Further Continuing Appropriations Act, 2013, which contained funding bills for the Department of Defense and Department of Veterans Affairs, with a full-year continuing resolution for all other departments and agencies.2014 United States federal budget
The 2014 United States federal budget is the budget to fund government operations for the fiscal year (FY) 2014, which began on October 1, 2013 and ended on September 30, 2014.
President Obama submitted the FY2014 budget proposal on April 10, 2013, two months past the February 4 legal deadline due to negotiations over the United States fiscal cliff and implementation of the sequester cuts mandated by the Budget Control Act of 2011. The House of Representatives passed its proposal, H.Con.Res 25, prior to the submission of the President's budget proposal, as did the Senate (S.Con.Res 8). The House and Senate budget resolutions were not reconciled as a final budget.At the time the fiscal year 2014 budget was debated, budgeting issues were controversial. Government spending had recently been limited by an automatic sequestration process that resulted when Congress and President Obama failed to meet spending reduction targets set by the Budget Control Act of 2011. The House and Senate were at the time controlled by different parties with different fiscal agendas.
Failure to pass an initial continuing resolution caused the federal government shutdown of 2013. The government was then funded through a series of two continuing resolutions. Final funding for the government was enacted as an omnibus spending bill, the Consolidated Appropriations Act, 2014, enacted on January 17, 2014.2016 United States federal budget
The United States Federal Budget for Fiscal Year 2016 began as a budget proposed by President Barack Obama to fund government operations for October 1, 2015 – September 30, 2016.
The requested budget was submitted to the 114th Congress on February 2, 2015.
The government was initially funded through a series of three temporary continuing resolutions. The final funding package was passed as an omnibus spending bill, the Consolidated Appropriations Act, 2016, enacted on December 18, 2015.2017 United States federal budget
The 2017 United States federal budget is the United States federal budget for fiscal year 2017, which lasted from October 1, 2016 to September 30, 2017. President Barack Obama submitted a budget proposal to the 114th Congress on February 9, 2016. The 2017 fiscal year overlaps the end of the Obama administration and the beginning of the Trump administration.
The government was initially funded through a series of three temporary continuing resolutions. Funding for military construction and the Department of Veterans Affairs was enacted on September 29, 2016 as part of the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act. The remaining funding was passed as an omnibus spending bill, the Consolidated Appropriations Act, 2017, enacted on May 5, 2017.2018 United States federal budget
The United States federal budget for fiscal year 2018, which ran from October 1, 2017 to September 30, 2018, was named America First: A Budget Blueprint to Make America Great Again. It was the first budget proposed by newly-elected President Donald Trump, submitted to the 115th Congress on March 16, 2017.The government was initially funded through a series of five temporary continuing resolutions. The final funding package was passed as an omnibus spending bill, the Consolidated Appropriations Act, 2018, enacted on March 23, 2018.2019 United States federal budget
The United States federal budget for fiscal year 2019 runs from October 1, 2018 to September 30, 2019. Five appropriations bills were passed in September 2018, the first time five bills had been enacted on time in 22 years, with the rest of the government being funded through a series of three continuing resolutions. A gap between the second and third of these led to the 2018–19 federal government shutdown. The remainder of government funding was enacted as an omnibus spending bill in February 2019.
United States articles
United States federal budgets
National government budgets