President Joe Biden released a $6.011 trillion federal budget proposal in May 2021 for fiscal year (FY) 2022. The U.S. government estimates it will receive $4.174 trillion in revenue through Sept. 30, 2022, creating a $1.837 trillion deficit for Oct. 1, 2022. The Congressional Budget Office (CBO) predicted before Biden’s budget proposal was released that the 2021 deficit would be $2.3 trillion. It later revised the 2021 deficit figure to $3 trillion as a result of the American Rescue Plan. The CBO also projected a cumulative deficit for 2022-2031 at $12.1 trillion, or an average of $1.2 trillion a year. In the 2022 federal budget, mandatory spending is budgeted at $4.018 trillion. Discretionary spending is forecasted to be $1.688 trillion. Interest on the national debt is estimated to be $305 billion.
Revenue
The federal government estimates it will receive $4.174 trillion in revenue in FY 2022. Most of this revenue is in the form of taxes paid by taxpayers either through income or payroll taxes. The estimate for each type of revenue is as follows:
Income taxes contribute $2.039 trillion or nearly 49% of total receipts.Social Security, Medicare, and other payroll taxes add $1.462 trillion or 35%.Corporate taxes supply $371 billion or nearly 9%.Excise taxes, customs, and tariffs contribute $141 billion or a little over 3%.Earnings from the Federal Reserve’s holdings add $102 billion or a little more than 2%. Those are interest payments on the U.S. Treasury debt the Fed acquired through quantitative easing.Estate taxes and other miscellaneous revenue supply the remaining 1.5%.
Spending
The government expects to spend $6.011 trillion in 2022. More than 65% of that pays for mandated benefits such as Social Security, Medicare, and Medicaid. Discretionary spending pays for everything else. It will be $1.688 trillion. The U.S. Congress appropriates this amount each year using the president’s budget as a starting point. Interest on the U.S. debt is estimated to be $305 billion. Interest on the approximate $30 trillion federal debt is the fastest-growing federal expense. The CBO expects net federal interest costs to double by 2031 and triple by 2051. The U.S. Treasury must pay the interest to avoid a U.S. debt default. A debt default by the U.S. has unknown consequences because it has never happened.
Mandatory Spending
Mandatory spending is estimated to be $4.018 trillion in FY 2022. This category includes entitlement programs such as Social Security, Medicare, and unemployment compensation. It also includes welfare programs such as Medicaid. Social Security will be the biggest expense, budgeted at $1.196 trillion. It’s followed by Medicare at $766 billion and Medicaid at $571 billion. Social Security costs are usually covered by payroll taxes and interest on investments. There was more coming into the Social Security Trust Fund than was being paid out until 2010. In 2021, Social Security benefits paid out exceeded the income from investments for the first time since 1982. Medicare is already underfunded because taxes withheld for the program don’t pay for all benefits. Congress must use tax dollars to pay for a portion of it. Medicaid is 100% funded by the general fund, also known as “America’s Checkbook.” This account is used to finance daily activities and long-term operations of the government.
Discretionary Spending
The discretionary budget for 2022 is $1.688 trillion. Much of it goes toward military spending, including Homeland Security, the Department of Veterans Affairs, and other defense-related departments. The rest must pay for all other domestic programs. The largest of these programs are Health and Human Services, Education, and Housing and Urban Development. The Overseas Contingency Operations fund has historically paid for wars or continuing military actions. The fund is not getting any fund allocation for 2022, as the service budget would cover its operations. A growing portion of the discretionary budget is set aside for disaster relief, such as hurricane and wildfire relief.
Military Spending
Military spending is included in the budget under discretionary spending. The biggest expense for the military is the Department of Defense base budget, estimated at $715 billion. Military spending includes the Departments of Homeland Security, State, and Veterans Affairs. All of these military costs combined equal $943.9 billion.
The Deficit
The budget deficit is estimated at $1.837 trillion. That’s the difference between $4.174 trillion in revenue and $6.011 trillion in spending. This shortfall is added to the existing national debt. Each president and their administration are credited or blamed for increases in national debt due to the budgets their administration proposes. Approval of the budgets is delegated to Congress. The president alone doesn’t bear the burden of deficit creation and national debt generation. Other elected officials do as well.
How the Deficit Contributes to the National Debt
The deficit adds to the U.S. debt each year. The government issues securities such as Treasury notes, which are purchased by many investors, to raise funds to cover the deficit. Japan and China are two countries whose governments “own” significant amounts of U.S. debt.
The Budget Process
Congress created the budget process in 1974. The Executive Office of Management and Budget prepares the budget, and this is what the budget process timeline should look like in a given year: The process and deadlines within it tend to get ignored due to political disagreements and government inefficiencies. Recent government shutdowns have occurred in 2013, in January 2018, and in December 2018. The December shutdown was the longest to date, lasting nearly five weeks from December 21, 2018, through January 25, 2019. Congress usually passes continuing resolutions and stopgap measures to avoid shutdowns.
