Every year, the federal government spends trillions of dollars. Where that money comes from and how it gets allocated is determined through a structured process that involves the President, Congress, and dozens of committees and agencies. This guide explains how the federal budget works, from the President’s initial proposal through final appropriation.

The Basics

The federal fiscal year runs from October 1 through September 30. The budget process for each fiscal year ideally begins more than a year in advance, though Congress frequently misses its own deadlines [1].

The Constitution gives Congress the sole authority to appropriate money: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law” (Article I, Section 9). This means the President can request funding, but only Congress can authorize spending [2].

Types of Federal Spending

Federal spending falls into three categories. In fiscal year 2025 the government spent about $7.0 trillion in total, divided roughly as follows [7][9]:

Category	Share of Spending (FY2025)	How It Is Funded
Mandatory spending	~60% ($4.2 trillion)	Authorized by permanent law (no annual vote)
Discretionary spending	~27% ($1.9 trillion)	Requires annual appropriations by Congress
Net interest on the debt	~14% ($970 billion)	Determined by debt level and interest rates

Mandatory Spending

Programs like Social Security, Medicare, Medicaid, and veterans’ benefits are funded by permanent statutes. Spending levels are determined by eligibility rules and benefit formulas, not annual votes. Changing mandatory spending requires changing the underlying law.

Discretionary Spending

Everything Congress votes on annually: defense, education, transportation, scientific research, foreign aid, federal agencies, and thousands of other programs. This is the spending that the annual budget process directly controls.

Interest on the Debt

The government must pay interest on the national debt. This amount is determined by the total debt outstanding and prevailing interest rates. It is not discretionary; it is an obligation. At about $970 billion in fiscal 2025, net interest was larger than the entire defense budget ($917 billion) [7].

The Budget Process: Step by Step

Step 1: President’s Budget Request (February)

By law, the President submits a budget proposal to Congress between the first Monday in January and the first Monday in February, though the deadline is often missed [3]. The Office of Management and Budget (OMB) prepares this document, which details the administration’s spending priorities, revenue projections, and policy proposals for the upcoming fiscal year.

The President’s budget is a request, not a mandate. Congress frequently ignores large portions of it. However, it frames the starting point for budget negotiations and signals the administration’s priorities.

Step 2: Congressional Budget Resolution (March-April)

The House and Senate Budget Committees each draft a budget resolution, a non-binding framework that sets total spending levels and revenue targets. Unlike regular legislation, the budget resolution:

Does not require the President’s signature
Is not a law
Sets spending ceilings that guide the appropriations process
Can include reconciliation instructions that allow certain tax and spending changes to pass the Senate with a simple majority rather than the 60 votes usually needed to end a filibuster

A budget resolution only takes effect when both chambers adopt the same text. In recent years one chamber has often simply adopted the other’s version, and in some years Congress has not adopted a resolution at all [4].

Step 3: Appropriations Process (April-September)

This is where the actual spending decisions are made. The Appropriations Committees in the House and Senate divide the discretionary spending allocation into 12 subcommittee jurisdictions:

Subcommittee	Covers
Defense	Department of Defense
Labor-HHS-Education	Health, education, labor programs
Homeland Security	DHS, border security, FEMA
Commerce-Justice-Science	DOJ, FBI, NASA, NSF
Agriculture	USDA, FDA, food programs
Energy-Water	DOE, Army Corps of Engineers
Interior-Environment	DOI, EPA, Forest Service
Financial Services	Treasury, IRS, judiciary, DC
Military Construction-VA	Military bases, Veterans Affairs
State-Foreign Operations	State Department, foreign aid
Transportation-HUD	DOT, HUD, FAA
Legislative Branch	Congress, Library of Congress, GAO

Each subcommittee holds hearings, marks up its bill, and sends it to the full committee, then to the chamber floor for a vote.

Step 4: Conference and Resolution (September-October)

If the House and Senate pass different versions of an appropriations bill, negotiators from both chambers work out a compromise, often bundling several of the 12 bills into a “minibus” or all of them into an “omnibus.” Both chambers then vote on the final text [8].

Step 5: Presidential Action

The President signs or vetoes the final appropriations bills. A veto sends the bill back to Congress, which can override with a two-thirds vote in both chambers.

When the Process Breaks Down

The budget process frequently fails to meet its deadlines. When appropriations bills are not enacted by October 1:

Continuing Resolutions (CRs)

Congress passes a continuing resolution that temporarily funds the government at previous-year levels. CRs can last weeks or months and are a routine part of the modern budget process [8].

Fiscal 2027 is a current example. It began on October 1, 2026, under a stopgap, the Continuing Appropriations and Extensions Act, 2027, which President Trump signed on September 2. It funds the government through December 11, 2026, so Congress must pass the regular bills or another continuing resolution by then to avoid a lapse [10].

Government Shutdowns

If Congress fails to pass either appropriations bills or a continuing resolution, federal funding lapses and a government shutdown begins. Non-essential federal employees are furloughed, and many government services are suspended.

A lapse can hit the whole government or only the agencies whose bills are unfinished. Notable shutdowns:

October–November 2025: 43 days, the longest government-wide shutdown in history, over expiring Affordable Care Act subsidies. It ended on November 12, 2025, with a bill that funded most agencies through January 30, 2026 [5].
February–April 2026: The Department of Homeland Security alone went unfunded for 76 days (February 14 to April 30), producing long airport security lines; the bill that ended it left out ICE and Border Patrol [6].
2018–2019: About five weeks, over border wall funding
2013: 16 days, over the Affordable Care Act

Essential services (military, law enforcement, air traffic control) continue during shutdowns, but employees work without pay until funding is restored.

Debt Ceiling

Separate from the budget process, Congress must periodically raise the debt ceiling, the statutory limit on how much the government can borrow. Failure to raise it could result in a default on government obligations. Debt ceiling negotiations frequently become political leverage points.

Revenue: Where the Money Comes From

In fiscal 2025 federal revenue totaled about $5.2 trillion [7]:

Source	FY2025 Amount	Share of Federal Revenue
Individual income taxes	$2.7 trillion	~51%
Payroll taxes (Social Security, Medicare)	$1.7 trillion	~33%
Corporate income taxes	$452 billion	~9%
Customs duties (tariffs)	$195 billion	~4%
Excise taxes and other	the remainder	~3%

Customs duties more than doubled from fiscal 2024 because of new tariffs, while corporate receipts fell.

The IRS, a bureau of the Department of the Treasury, administers the collection of federal taxes. Tax policy is set by Congress through legislation.

The Deficit and National Debt

When the government spends more than it collects in revenue in a given year, the difference is the budget deficit. The accumulated total of all past deficits (minus surpluses) is the national debt.

The budget has been in deficit in every year since 1970 except fiscal 1998–2001, the last surpluses. In fiscal 2025 the deficit was about $1.8 trillion: $7.0 trillion spent against $5.2 trillion collected [7]. The national debt has grown substantially, driven by tax cuts, spending increases, and emergency spending during economic crises.

Why It Matters

The federal budget determines:

How much the military spends and where
Funding levels for Social Security, Medicare, and Medicaid
Investment in infrastructure, education, and scientific research
The size of the federal workforce and the scope of government services
Tax policy that affects every American

Congressional committees with jurisdiction over these areas shape policy through the budget process. Understanding how the process works is essential to understanding how policy decisions are made.

Key Takeaways

Only Congress can appropriate federal funds; the President’s budget is a request, not a mandate
Mandatory spending (Social Security, Medicare) makes up the majority of the budget and does not require annual votes
Discretionary spending is controlled through 12 annual appropriations bills
The process frequently breaks down, resulting in continuing resolutions or government shutdowns
Revenue comes primarily from individual income taxes and payroll taxes

Next Steps

Understand the broader government structure with our three branches guide
Learn how laws are shaped in our congressional committees explainer
Explore the agencies that execute the budget in our government agencies guide

Sources

This article is a factual reference guide to the federal budget process. It does not express political opinions or endorse any party, candidate, or policy position.