budget basics


Lawmakers and pundits love to debate ideas, policies and principles (we're not criticizing - we do too), but in the end of the day governing often comes down to priorities - that is, how much money to fork over for the principles you believe in (unless, of course, you believe in the principle of small government).

Here's some basic information on where our priorities lie - how much we spend, what we are spending it on and where we're getting it from.

For a primer on how the budget gets passed, see the budget process. For iinfo on the 2008 budget currently on Congress' plate, see our budget tracker.

Budget basics

How much we spend (at the federal level)

  • Total - $2.5 trillion* (2005) CBO (pdf)

Mandatory vs. Discretionary spending:

Explainer: Mandatory spending is spending that is based on formulas written into the law. It's generally fixed (you'd have to change the original law to change the spending amount) and so doesn't figure into writing the yearly budget. Discretionary spending levels are what get set every year by Congress in the budget process. Although laws may set minimum and maximum spending levels, Congress has leeway to push around numbers – and to tighten or expand discretionary spending. Bringing the idea home: If you think of your own monthly budget, things like rent or mortgage payments would be mandatory spending (you could change them, but it would be a big hassle), while entertainment or food would be discretionary (you could belt-tighten or live large depending on your mood – or cash flow – in a given month).

Mandatory Spending in 2004

  • $1.2 trillion, made up of:
  • Social Security - $492 billion
  • Medicare - $297 billion
  • Medicaid - $176 billion
  • Income Security - $191 billion
  • Other Retirement and Disability - $135 billion
  • Other - $55 billion
  • Offsetting Receipts - $108 billion (this gets subtracted from the total mandatory spending, according to CBO accounting)

Discretionary Spending in 2004

  • $895 billion, made up of:
  • Defense - $454 billion
  • International - $34 billion
  • Domestic Spending - $407 billion

Net interest: $160 billion

*NOTE – Iraq and Afghanistan costs are not included in the budget – numbers can be found on our War Budget tracker.

putting it all in a picture- what we spend our money on: mandatory vs. discretionary

source: CBO (pdf). note: graph doesn't include "offsetting receipts" ($108 billion) or net interest ($160 billion)

Spending by "function" (2004)

The president's budget office breaks down total spending (mandatory and discretionary) by how the money is ultimately used.

  • Health: $510 billion
  • Social security: $496 billion;
  • Defense: $456 billion;
  • Income security: $333 billion;
  • Net interest on debt: $160 billion;
  • Education, training, employment, and social services: $88 billion;
  • Transportation: $65 billion;
  • Veterans: $60 billion;
  • Justice: $46 billion;
  • Natural resources and environment: $31 billion;
  • International affairs: $27 billion;
  • Science, space and technology: $23 billion;
  • Government administration: $22 billion;
  • Community/regional development: $16 billion.
  • Agriculture: $15 billion

Federal Spending over the years - compared to GDP

The graphs below shows trends in Federal spending as a percentage of the Gross Domestic Product (loosely speaking, the national income).

Mandatory, Discretionary and Total. While total mandatory spending has increased from 4.9% - 10.7% of GDP, total discretionary spending has dropped from 12.7% - 7.7%. Total federal spending has roughly remained the same – 17.6% ('62) and 18.4% ('04).


source: CBO (pdf)

Defense, Social Security and health. If you tease out the budget's bulkiest expenses, you see the two biggest trends in our budgetary shift over the years: defense spending coming down, health spending going up. Social Security spending - the gold line - is harder to see, but it's also risen considerably - from 2.5% of GDP to 4.3%.

Where the Federal funds come from

(2004) CBO (pdf)

  • Income Taxes - $927 billion

  • Corporate Taxes - $178 billion

  • Social Insurance Taxes - $794 billion

  • Excise (goods and services) Taxes - $73 billion

  • Estate and Gift Taxes - $25 billion

  • Other - $56 billion

How much the states spend

  • $523 billion (2005) NASBO

  • How much states and localities spend (2004) (BEA): $1.6 billion (348 million came from federal grants).

Where the facts are from:


  • Douglas Holz-Eakin, the former head of the CBO, gives a stark picture of future budget crunches.

Facts pulled together with Steven Cytryn. Updated 2.10.06.

Did we miss something, let some slant slip in, lose a link - or do you just have something to say? Drop a line below! In the spirit of open dialogue, cJ asks you keep it civil, keep it real and keep it focused on the message, not the messenger. See our policy page for more on what that all means.

Posted In
talker's picture

links working

Thanks so much for tipping us off C! CBO had, indeed, switched up their links. They should be working now.

talker | November 6, 2007 - 11:00pm

no links from CBO working...

Hi Joe,

Thanks a lot for this info. I'm trying to use the pie chart you have up, but I can't get a link to the CBO to work... and I don't want to use unknown sources. Thanks a million.


a random Joe (not verified) | November 6, 2007 - 12:09pm

If you do an search indented

If you do an search indented with CBO in Google for these, they come up as the top results.

This is a great overview of the situation. Are you planning an updated analysis with 2008's figures?

wow gold (not verified) | August 7, 2008 - 8:19am