What Is the Federal Budget?

The federal budget is a budget developed each year by the government that allocates financial resources for public expenses. In 2015, the federal budget was $3.8 trillion, notes National Priorities Project.

As measured by gross domestic product (GDP), the finances allocated for the federal budget amount to about 12 percent of the annual overall economy, notes National Priorities Project. This breaks down to approximately $12,000 for each person in the United States. The money allocated for the federal budget is directed towards a variety of public service projects such as building and maintaining roads and infrastructure. The money is divided into three categories, which are established by the U.S. Department of the Treasury. The Treasury allows expenses to be granted for mandatory spending, discretionary spending and paying interest on debt. With a collective budget allocation of roughly 90 percent, mandatory and discretionary spending accounts for the majority of federal budget expenses.

Federal Expenses
Across the three categories, federal funds are used to finance a variety of projects related to the public. This includes military spending, financing federal employees, subsidizing healthcare and paying for agricultural subsidies. The budget is set annually in accordance with the fiscal year, which begins on the first day of October and ends the last day of September. While the budget is set at the same time each year and is designed to cover the same projects, the amount of money set aside for the federal budget can change. The annual budget is created by revenue from taxes, and it can either result in the government operating in a surplus or deficit at the end of year. Since 2001, the government has ended up with a budget deficit at the end of the year, note authors at Investopedia.

Mandatory Spending
One of the most important parts of the federal budget is financing mandatory programs. Mandatory expenses are reserved for healthcare programs like Medicare and Medicaid as well as social security benefits. Other programs, like federal food stamp programs and public transportation services, are also classified as mandatory expenses. Mandatory programs are funded at the discretion of Congress, which must approve funding allocation for these programs each year, say authors at National Priorities Project. However, Congress does not have the power to set the amount of spending allocated for each program. Instead, it can review each program annually and decide whether or not to make programs more inclusive or exclusive. It can also make recommendations to distribute more funds or fewer funds for each program.

Discretionary Spending
In addition to mandatory funding, the federal budget sets aside finances for discretionary funding. Discretionary funding is financing for other federal programs and projects that is approved by Congress. This is accomplished through an annual appropriations process. In fiscal year 2015, for instance, Congress set aside $1.1 trillion of the annual budget for discretionary funding, notes the National Priorities Project. Historically, most funding for federal programs goes to financing operations of the Pentagon and other military endeavors. Discretionary funding is also used to finance other government programs, such as funding for disadvantaged and low-income students, as well as food assistance programs and employment training for underrepresented segments of the population. Discretionary funding can also be directed towards the operations of the National Science Foundation and the National Institutes of Health.