Here’s How the U.S. Spends the Federal Budget — And How DOGE Aims To Cut Costs
Written by
Caitlyn Moorhead
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Like households, the federal government must live within the confines of a budget. However, those confines are much, much larger than the spending limits of the average household — or any household, for that matter.
How large? The federal government is projected to spend about $7 trillion in 2025, according to the Congressional Budget Office. However, with Elon Musk heading the Department of Government Efficiency (DOGE) the spending budget could take some drastic turns.
If you’re wondering where that money comes from and where it goes, here’s what you need to know about the federal budget and how it impacts you.
How the Federal Budget Process Works
If you think staying on top of your household budget is tedious, consider the process the federal government must go through each year. Actually, the process takes more than a year. The U.S. government doesn’t budget for the calendar year starting on Jan. 1 but rather a fiscal year starting on Oct. 1 and going through Sept. 30 of the following year. The process for creating the budget begins a year and a half before the fiscal year begins.
- Step 1: Government agencies start compiling their spending proposals in the spring (1 1/2 years before the fiscal year begins) to submit to the White House Office of Management and Budget.
- Step 2: Using the agencies’ request, the OMB and president create a budget request that typically is submitted to Congress by the first Monday in February.
- Step 3: The House of Representatives and Senate budget committees draft budget resolutions. Then a House-Senate conference committee resolves the differences between the two resolutions to create one budget resolution that both the House and Senate are supposed to approve by April 15. If Congress fails to pass a resolution, then the previous year’s resolution stays in effect.
- Step 4: The House and Senate appropriations committees must draft bills to fund discretionary agencies and programs — those that aren’t mandated by law to be funded.
- Step 5: The full House and Senate vote on appropriations bills. A conference committee then combines the two bills and both the House and Senate vote on it. If it passes, it goes to the president to be signed.
- Step 6: If an appropriations bill isn’t passed by Sept. 30, the president must sign a continuing resolution to temporarily fund government agencies. If a continuing resolution isn’t signed, there will be a lapse in funding and parts of the government will shut down, of which there have been many.
How Will DOGE Affect Government Spending?
At this point in time, you may be curious as to just how much impact Musk’s DOGE will have on the government’s budget. With the lofty goal of cutting $1 trillion from federal spending by the end of the fiscal year.
However, as DOGE makes moves to cancel big contracts, end leases and execute huge reductions in many federal agencies’ workforce, many are starting to wonder if Musk realizes those actions won’t come close to achieving the $1 trillion cut. The government’s balance sheet will ultimately show that the claims Musk, Trump and DOGE combined will drastically fall short if no other questionable initiatives are taken.
There also does seem to be a bit of a disconnect between the wealthiest man on the planet (Musk currently has an estimated net worth of $351.6 billion) taking away the income of potentially hundreds, if not thousands, of federal employees and veterans in order to save money.
With DOGE hacking away at the budget, even popular programs like Social Security, Medicare and Medicaid could be on the chopping block. Though the president has not explicitly said, these programs could be defunded for the sake of streamlining.
Where the Money Comes From
The bulk of the federal government’s money comes from individual, corporate and payroll tax revenues. In short, your tax dollars help fund the federal government. The debt is expected to continue to rise if the federal government doesn’t adjust its fiscal policy by raising taxes or reducing spending.
Of course, raising taxes could impact you. But doing nothing also could hurt the economy and you.
“High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation,” according to a Congressional Budget Office report. “The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis.”
Where the Money Goes
The federal government’s budget covers mandatory outlays, discretionary outlays and interest on its debt. Think of mandatory outlays as fixed expenses, bills that must be paid. Discretionary outlays are more like a household’s variable expenses, such as food purchases.
Mandatory Outlays and Discretionary Outlays
The majority of the federal government’s budget goes toward mandatory outlays — programs with spending amounts mandated by law such as Social Security, Medicare and Medicaid. The Congressional Budget Office projects that over $4.2 trillion will be spent on mandatory outlays in 2025, whereas about $1.8 trillion will be put toward discretionary outlays.
Some projected mandatory outlays for 2025:
- Social Security: $1.6 trillion
- Major healthcare programs (Medicare and Medicaid): $1.8 trillion
Some projected discretionary outlays for 2025
- Defense: $859 billion
- Nondefense, including education, transportation, natural resources, energy, and commerce programs as well as nonmandatory veterans, healthcare and income support benefits: $989 billion
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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