The President’s budget shows federal revenue, spending, and debt increasing to different degrees, with the annual deficit falling to zero by 2027. The CBO projects similar trends, but with revenue increasing at a slower rate and, therefore, annual deficits continuing.
Who will pay for the revenue increases? Will my taxes increase?
The President’s budget shows annual revenue increasing $1.1 trillion, or 34%, in six years. Revenue growth is forecasted to come primarily from individuals through higher income and payroll taxes. The increase in taxes paid by individuals is driven by assumed growth in their income; the budget projects that annual employee compensation will be 35% higher in 2022 than it was in 2016. Within the budget, any proposed tax reform (e.g. reductions to certain individual income tax rates) is assumed to be deficit neutral, which means that any tax reductions would be paid for by increasing tax revenue or reducing spending elsewhere. In the future, we will publish an analysis of the tax reform proposal.
Budgeted revenue increases exceed revenue decreases. The largest decrease is a $105 billion annual revenue loss associated with repeal of the Affordable Care Act (ACA), which is funded in part by tax revenue.
Though most revenue categories increase in absolute dollars, the share of total federal revenue they represent may not. The share of federal revenue coming from individual income taxes is projected to increase from a historical average of 45% of annual revenue to 51% in 2022, while the share coming from payroll taxes decreases from 36% to 33%, and the share from corporate income taxes decreases from 10% to 9%.
Are revenue and GDP likely to grow as budgeted?
The budgeted revenue growth is tied to assumptions about the health of the US economy, as reflected by gross domestic product (GDP). GDP is a measure of the value of all finished goods produced and services provided in the country during the period. The President’s budget assumes an average annual GDP growth rate of 2.8%, which approximates the historical average, but is higher than the average for recent years.
CBO projects that GDP will grow at an average rate of 1.9% annually, nearly a full percentage point below the rate in the President’s budget. This causes CBO’s projected revenues to be lower, and therefore projected annual deficits to be larger. The difference between 2.8% and 1.9% may seem small, but the difference in dollars of GDP that results in 2022, just six years from now, is $1.1 trillion, about the size of Mexico’s entire economy.
The President’s budget shows annual spending increasing $969 billion, or 25%, in six years. The largest increases in spending are for Social Security, interest on the national debt, and Medicare. Proposed spending increases exceed spending reductions; the only proposed reduction that is material to the overall budget is $140 billion in annual savings related to repeal of the Affordable Care Act.
Though most expenditure categories increase in absolute dollars, the share of total federal government expenditures they represent may not. Social Security expenditures increase from a historical average of 21% of annual spending to 25% in 2022; Medicare increases from 10% to 17%; national defense decreases from 20% to 13%; and Medicaid/CHIP (children’s health insurance) increases from 6% to 9%.
Should the budget be balanced? What does the President’s budget mean for our future?
On September 30, 2016, the amount of federal government debt held by the public (excluding accrued interest) totaled $14 trillion, or $43,800 per American. The President’s budget shows overall increases in federal revenue that outpace increases in expenditures, causing the annual deficit to fall to zero by 2027 and the national debt to increase to $19 trillion. CBO projects the annual deficit increases slightly over this same period, causing the national debt to reach $23 trillion in 2027.
For historical comparison, the federal government has spent more than it has taken in every year since 1980, except the four years between 1998 and 2001. These annual deficits have fluctuated, but peaked in 2009 during the Great Recession, and have declined by nearly 60% since, to $585 billion in 2016.
In addition to borrowing from the public to fund its deficits, the federal government also borrows from itself, with certain programs and agencies borrowing funds from other programs and agencies. These funds must be paid back and therefore the total debt that the federal government owes is larger than the debt held by the public, with a total of $20 trillion as of September 30, 2016. This is the debt subject to the debt ceiling, which was also $20 trillion as of September 30, 2016.
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More information
What is included in this report?
This report presents data for 2017-2027 from the 2018 Budget of the US Government, prepared by the White House Office of Management and Budget (the President’s budget). For context, we also present actual historical data from 1980-2016, as well as budget and economic projections from the independent Congressional Budget Office (CBO). USAFacts does not offer opinions on the merits of proposed spending and revenue changes, but we hope this report helps you develop your own opinions.
This report is focused exclusively on the federal budget and, therefore, does not include what is received and spent by state and local governments on schools, police, and other areas. For historical finances of state and local governments and for all US government combined, please visit our government finances page.
More about what’s in the charts
In these charts, historical federal government data is from the OMB.
The President’s Budget comprises projections from the OMB, and the CBO figures are estimates of the policies underlying the President’s Budget. Projections by OMB and CBO differ for a variety of reasons, the most notable being differing assumptions about economic growth. A detailed discussion of the economic assumptions in the budget is available here. A detailed discussion of CBO’s economic assumptions is available here.
We have converted OMB’s domestic corporate profit and employee compensation figures by calendar year per the budget to fiscal year figures using a ratio derived from their calendar and fiscal year GDP figures per the budget.
It is important to note that projected spending changes (both in dollar and percentage terms) are compared to actuals for 2016. They are not estimates of changes in spending compared to a baseline of no policy changes. For example, Medicaid/CHIP spending is projected to increase over the five-year period from 2017 to 2022. However, this Medicaid/CHIP spending is lower than it would otherwise be due to the assumed reductions in Medicaid/CHIP spending that would take place under the President’s proposed policies.
The President’s Budget does not state specifically how the reductions related to repeal of the Affordable Care Act would be achieved and therefore they are shown separately from specific revenue and expenditure categories.
In our final chart, with spending by individual agency, bureau, and program, “program” represents an “account” in OMB parlance. One should be careful not to assume that amounts shown at these levels constitute the total cost of a program, such as Medicare. This search feature is provided for supplementary information only.
Why is GDP included in the analysis?
Generally, if GDP grows at a more modest pace, revenue growth is slower because the government generally taxes economic activity (i.e., income). Furthermore, a slower economy can also affect spending growth because many programs (such as unemployment benefits) are “automatic stabilizers” that expand when economic conditions worsen. Therefore, understanding GDP assumptions is key to understanding overall budgets. GDP for future years is based on projections by OMB.
The chart that analyzes historical accuracy of GDP predictions shows average annual growth rates of actual and forecast GDP over two-year periods. The date labels refer to the initial year of the two-year period. Prior to 1992, Gross National Product was forecasted instead of GDP, and so that is the data included in the chart for those years.
How does the federal government spend more than it takes in?
The annual deficit is the amount by which spending exceeds revenues in a given fiscal year. To finance its annual deficits, the government borrows from the public by issuing debt, primarily Treasury bills. The federal debt is the cumulative amount that the federal government owes to the public (including state and local governments). During rare years of surplus, excess funds are typically used to repay a portion of the debt.
The federal budget process
Preparation of the federal government budget includes four key actions:
- The president submits his budget to Congress, a detailed document including 10 years of revenue and spending policy proposals and priorities. This budget is a request and not a law.
- The CBO submits its economic outlook and analysis of the President’s Budget to the House and Senate Budget Committees.
- The House and Senate Budget Committees prepare a budget resolution, which is briefer than, and may differ significantly from, the President’s budget proposal.
- Congress passes the budget resolution through a majority vote.
The budget resolution does not have the force of law, and no money can be raised or spent pursuant to it. Congress makes budget resolutions law through action on individual revenue and debt limit measures, annual appropriations acts, and direct spending legislation. For more about the federal budget process, click here.
The first two of the four key actions above have been completed for this budget cycle and are reflected in this report.
Inflation and population adjustments
Per capita calculations are based on fiscal year population estimates and projections of future population growth rates by the Census Bureau.
Inflation adjusted figures were adjusted as follows, all on a federal fiscal year basis:
- Historical – using the GDP Deflator from the Bureau of Economic Analysis (BEA), as provided by OMB;
- President’s budget forecasts – using OMB inflation projections; and
- CBO forecasts – using CBO inflation projections.
Numbers in the text, tables, and figures are not adjusted for inflation unless otherwise noted and may not add up to totals because of rounding. Also, some values are expressed as fractions to indicate numbers rounded to amounts greater than a tenth of a percentage point.
Additional things to note
USAFacts defines federal spending and revenue somewhat differently than OMB/CBO. A few items that OMB or CBO classify as spending are counted as revenues by USAFacts, and vice versa. For more information, see our methodology here. This re-categorization does not affect the deficit figure.
Unless otherwise indicated, all years referred to herein are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end.
Historical averages are for the years 1980 to 2016.
Sources
Office of Management and Budget
U.S. Census Bureau (population)
