The US government allocates funds across a wide range of programmes, services and initiatives to support the American public, as well as to cover interest payments on borrowed money. Under the US Constitution, Congress holds the authority to create a federal budget, effectively determining how much the government can spend during the upcoming fiscal.
How The US Federal Budget Is Developed
Each year, the US Congress begins work on the federal budget for the upcoming fiscal year, which runs from October 1 of one calendar year to September 30 of the next. Budget planning usually starts a year in advance, giving agencies and lawmakers time to prepare and review spending priorities.
Federal agencies first create detailed budget requests and submit them to the White House Office of Management and Budget (OMB). The OMB reviews these requests as it develops the President’s budget proposal, which is then submitted to Congress early the following year.
Once in Congress, the proposed funding is divided among 12 subcommittees, each responsible for specific government functions such as defence, energy, or water programmes. These subcommittees hold hearings to examine and debate the proposals in detail.
Following these hearings, both the House of Representatives and the Senate draft their own budget resolutions. These resolutions must be negotiated and merged, resulting in a single version of each funding bill. Once approved, the bills are sent to the President, who has the authority to sign them into law or veto them.
Each year, lawmakers decide on the level and allocation of discretionary spending while also providing resources for mandatory programs. The funding for these expenditures primarily comes from tax revenues and government borrowing.
In fiscal 2024, the federal government spent about $6.8 trillion, which translates to around $19,900 for each person in the US on average.
Three Main Categories Of Federal Spending
The federal budget can be divided into three major categories: mandatory spending, discretionary spending and net interest.
Mandatory Spending: Mandatory spending, also referred to as direct spending, is determined by existing laws. It includes funding for entitlement programmes such as medicare and social security, as well as other payments to individuals, businesses and state and local governments. For instance, the Social Security Act obliges the government to provide payments to beneficiaries based on their earnings and other criteria. Last amended in 2019, the Act will continue to dictate federal spending levels until it is revised again. Because these programmes are governed by authorising legislation, their funding must be allocated each year, which is why this type of expenditure is called mandatory.
Discretionary Spending: Discretionary spending refers to funds that are formally approved by Congress and the President each year through the appropriations process. Typically, more than half of this budget is allocated to national defence, with the remainder used to fund the operations of other federal agencies and programmes. These include areas such as transportation, education, housing, social services, as well as scientific research and environmental initiatives.
Net Interest: The final major category is net interest, or payments on the national debt. Recent increases in interest rates, influenced by inflation and Federal Reserve policies, have made debt servicing the fastest-growing component of the federal budget, surpassing even Social Security and Medicare in terms of growth rate.
According to one data source, in FY 2024 about 61% of the budget was mandatory spending, about 26% was discretionary, and the remainder was interest.
Where The Money Goes
In FY 2024, social security accounted for 22% of the federal budget, while medicare represented 14%. Both programmes fall under mandatory spending, which is set by law and does not require annual approval from Congress. Discretionary spending made up 26% of the budget that year. By June 2025, federal spending for FY 2025 had reached $5.3 trillion, marking a 6.3% increase compared with the same period in 2024.
Why It Matters
Understanding where the money goes shows both the priorities of the government and the pressures the budget faces.
Mandatory spending growing: Over the decades, expenditure on mandatory programmes has risen more rapidly than other areas of the federal budget, driven mainly by growth in social security, medicare and medicaid. In the early 1970s, such programmes accounted for around 40% of total federal spending. According to the Congressional Budget Office (CBO), mandatory programmes now represent approximately 60% of federal outlays.
Discretionary spending shrinking: In the 1960s, around two-thirds of total federal spending was devoted to discretionary programmes. By 2024, this had fallen to 27% of the budget, and projections suggest it will decline further over the next decade to a historically low level relative to the size of the national economy.
Rising interest costs: Now, the US spends over $2.6 billion each day on interest payments. Over the coming decade, the Congressional Budget Office (CBO) estimates that interest costs will total $13.8 trillion, and looking further ahead, it projects that net interest will rise from 13% of the federal budget in 2024 to 23% by 2054.
Mapping America’s Priorities
The US federal budget is a massive exercise in collective choice, reflecting what the country values, how it supports its citizens and how it prepares for the future. Every fiscal year, the federal government appropriates trillions of dollars, and examining where this money is spent reveals insights into national priorities, fiscal pressures and long-term sustainability.
By understanding the federal budget, citizens, analysts and policymakers can gain a clearer picture not only of the total amount spent but also of how funds are directed and why these decisions are made.