Chapter 16: The Budget — How Taxing and Spending Reveal a Nation's Real Priorities

16.1 The Quiz Most Americans Fail

Before reading any further, try a small exercise. Without looking anything up, estimate what share of the federal budget is spent on each of the following:

• Foreign aid
• Welfare
• The arts (NEA, NEH, public broadcasting)
• National defense
• Social Security
• Medicare and Medicaid
• Interest on the national debt

If you are a typical American, your answers will be wrong, sometimes by an order of magnitude. Survey after survey has found this. A 2017 Kaiser Family Foundation poll asked Americans to estimate the foreign-aid share of the federal budget; the median guess was 31%.¹ The actual figure was, and is, around 1%. A 2023 University of Maryland Program for Public Consultation poll asked respondents to estimate the share spent on the arts and on public broadcasting; median guesses ranged from 1% to several percent. The actual figure for the National Endowment for the Arts, the National Endowment for the Humanities, and the Corporation for Public Broadcasting combined is well under one-tenth of one percent.²

This is not a story about Americans being uniquely uninformed. It is a story about a federal budget that is genuinely difficult to understand, that is reported on incompletely and partisan-selectively, and that has grown to a scale at which the human mind has trouble rendering the relevant numbers. Six point eight trillion dollars is not a meaningful quantity to most of us. We can imagine the cost of a car or a house. A trillion dollars is the cost of roughly fifteen million houses. The federal government spends about that much every two months.

This chapter is the corrective. By the end, you should be able to reproduce, from memory, the approximate share of the federal budget that goes to Social Security, Medicare, Medicaid, defense, and interest on the debt; the approximate share of revenue that comes from individual income taxes, payroll taxes, and corporate income taxes; the approximate size of the annual deficit and the federal debt; and the approximate trajectory of those numbers over the next decade. You should also understand why the actual budget process — the one that exists in the world rather than the one in your high-school civics textbook — has run off-schedule almost continuously for thirty years, and what the consequences of that breakdown have been.

The chapter is honest about the numbers. It is balanced on the normative questions. There are real and serious disagreements about whether federal spending is too high, federal taxation is too low, the long-run debt trajectory is dangerous, and what to do about any of it. The book takes no position on which of those normative claims is correct. It does take the position that you, as a citizen, should know the actual figures before deciding what you think.

A note on data currency. The figures in this chapter are drawn from FY2024 actuals (where final Treasury figures are available) and FY2025 projections (where they are not). Sources are the Congressional Budget Office (CBO) Budget and Economic Outlook (January 2025 and the Long-Term Budget Outlook updates), the Office of Management and Budget (OMB) Historical Tables, the Treasury Department's Monthly Treasury Statement, and the Government Accountability Office (GAO) Financial Report of the United States Government. Numbers in different sources sometimes differ at the margins because of timing, classification, and rounding. Where this matters we note it.

16.2 The Numbers

16.2.1 The Top Lines

For fiscal year 2024 (October 1, 2023 through September 30, 2024), the federal government collected approximately $4.9 trillion in revenue** and spent approximately **$6.8 trillion in outlays, producing a deficit of approximately $1.9 trillion.³ Revenue equaled approximately 17.1% of gross domestic product. Outlays equaled approximately 23.4% of GDP. The deficit equaled approximately 6.4% of GDP. Each of those ratios is meaningfully above its long-run historical average. Revenue at 17% of GDP is roughly average for the postwar era, slightly below the long-run average of about 17.3% but within normal range. Outlays at 23.4% of GDP are well above the postwar average of about 20.5%; the federal share of the economy has grown. The deficit at 6.4% of GDP is unusually high for an economy not in recession; deficits of that size have historically occurred only during major recessions or wars.

The accumulated federal debt held by the public, as of the end of FY2024, was approximately $28 trillion**. That figure represents debt the federal government owes to outside parties: private investors (American and foreign), foreign central banks, the Federal Reserve, mutual funds, pension funds, and so on. The **total federal debt**, including amounts the federal government owes to itself (primarily to the Social Security and Medicare trust funds), was approximately **$36 trillion. The two figures are both real measures of indebtedness; they answer different questions. Debt held by the public is what the government will need to refinance in capital markets. Total debt, including intragovernmental holdings, is the gross outstanding obligation.

Debt held by the public, expressed as a share of GDP, was approximately 99% at the end of FY2024, with CBO projecting a rise to 107% by FY2029 and 122% by FY2034 under current-law baseline. This is the highest debt-to-GDP ratio since the immediate aftermath of World War II, when the figure peaked at about 106% in 1946 before falling steadily as the postwar economy grew faster than the debt. CBO's current projection is that, absent a change in policy, the ratio will continue to rise.

16.2.2 Where the Money Goes

Federal outlays in FY2024 break down approximately as follows. The shares are rounded to the nearest percentage point and may not sum to exactly 100% because of rounding.

Mandatory spending: approximately 63% of outlays, or about $4.3 trillion. Mandatory spending is spending that is determined by formula or by entitlement law rather than by annual appropriations. Once Congress passes the underlying authorizing statute, the spending happens automatically as long as people are eligible. The major categories:

• Social Security: approximately $1.5 trillion (22% of outlays). Old-Age, Survivors, and Disability Insurance — the federal program that pays monthly benefits to retirees, surviving spouses and children of deceased workers, and adults with disabilities. About 68 million Americans receive benefits.
• Medicare: approximately $1.05 trillion (15% of outlays), gross of premium offsets and roughly $865 billion net. The federal health insurance program for Americans aged 65 and over and for younger Americans with certain disabilities. The gross-vs.-net distinction matters: Medicare beneficiaries pay premiums for Parts B and D, and those premium payments offset a portion of program costs; published figures sometimes report gross outlays, sometimes net. Approximately 67 million Americans are enrolled.
• Medicaid and CHIP: approximately $650 billion (10% of outlays, federal share only). The joint federal-state health insurance program for low-income Americans, plus the Children's Health Insurance Program. Federal Medicaid spending is matched by state Medicaid spending; the federal share is what appears in the federal budget. Approximately 79 million Americans are enrolled in Medicaid (peak Covid figures); enrollment has declined as pandemic-era continuous-enrollment provisions have unwound.
• Other mandatory: approximately $1.0 trillion (15% of outlays). This category aggregates everything else that runs on autopilot: SNAP (food stamps), Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), unemployment insurance (federal share), federal civilian and military retirement, veterans' compensation, refundable portions of the Earned Income Tax Credit and Child Tax Credit, the federal share of student-loan programs, and a variety of smaller mandatory programs. This bucket is heterogeneous and politically diverse: it contains both the major means-tested anti-poverty programs and the federal government's obligations to its own retired employees and veterans.

Discretionary spending: approximately 24% of outlays, or about $1.7 trillion. Discretionary spending is the portion of the budget appropriated by Congress each year through the annual appropriations process. By rough convention it splits into two categories:

• Defense discretionary: approximately $910 billion (13% of outlays). This is the budget of the Department of Defense plus defense-related activities at the Department of Energy (nuclear weapons), the intelligence community's overt budget, and various smaller defense-adjacent accounts. It does not include Veterans Affairs (which is non-defense discretionary) or military retirement (which is mandatory).
• Non-defense discretionary: approximately $770 billion (11% of outlays). This is everything else in the discretionary budget. Non-defense discretionary covers the National Institutes of Health, the Department of Education's federal-aid programs, the Federal Aviation Administration, NASA, the Environmental Protection Agency, the National Park Service, the Centers for Disease Control, foreign assistance and the State Department, federal courts, the Internal Revenue Service, federal law enforcement, infrastructure grants, Pell Grants, and most of the rest of what people picture when they imagine "the federal government." For many Americans the most visible federal activities — national parks, the FBI, the FAA, the NIH — are funded out of this 11% slice.

Net interest: approximately 13% of outlays, or about $880 billion in FY2024. This is the interest cost of servicing the federal debt, net of interest the government earns on its own holdings. In FY2024, for the first time in the postwar era, net interest exceeded defense discretionary spending. CBO projects net interest will continue to grow, both in absolute terms and as a share of outlays, through the 2030s. The growth has two drivers: the stock of debt is larger, and the average interest rate paid on that debt is higher than it was in the 2010s, when the Federal Reserve held short-term rates near zero.

To restate the breakdown in a single sentence: roughly two-thirds of the federal budget is mandatory spending, mostly on programs for the elderly and on health care; about a quarter is discretionary, of which more than half is defense; and a growing slice — already larger than defense — is interest on the debt. The "everything else" category that most Americans imagine when they picture government waste is the 11% non-defense discretionary slice. There is real waste in non-defense discretionary, and there is real waste in mandatory and defense, but the relative magnitudes are what they are.

16.2.3 Where the Money Comes From

Federal revenues in FY2024 break down approximately as follows.

• Individual income taxes: approximately $2.4 trillion (50% of revenue). The federal income tax on wages, salaries, business income, capital gains, dividends, interest, and other personal income. The income-tax system is progressive: marginal rates rise with income, and the bottom of the distribution often pays no federal income tax (though many in this group pay payroll tax). For FY2024, approximately the top 1% of earners paid about 40% of all federal income tax revenue, the top 10% paid about 70%, and the bottom 50% paid about 3%.⁴
• **Payroll taxes: approximately $1.7 trillion (36% of revenue).** Social Security and Medicare payroll taxes, plus unemployment insurance taxes. The Social Security tax is 12.4% of wages up to a cap ($168,600 in 2024, indexed annually), nominally split between employer and employee at 6.2% each but in economic incidence largely borne by workers. The Medicare tax is 2.9% of all wages with no cap, plus an additional 0.9% on high earners under the Affordable Care Act. The dedicated nature of payroll taxes — they are formally earmarked to the Social Security and Medicare trust funds — has long political consequences we will discuss below.
• Corporate income taxes: approximately $530 billion (11% of revenue). Tax on the profits of C-corporations. The 2017 Tax Cuts and Jobs Act lowered the statutory corporate rate from 35% to 21%; the Inflation Reduction Act of 2022 added a 15% corporate alternative minimum tax on book income for very large corporations. The effective tax rate paid by corporations — what they actually pay after deductions and credits — is well below the statutory rate, a politically contested point we examine in §16.7.
• Excise, customs, estate, and miscellaneous: approximately $260 billion (5% of revenue). Excise taxes on gasoline, tobacco, alcohol, airline tickets, telephone service, and a few other goods; customs duties on imports; the federal estate tax; and a handful of smaller items including Federal Reserve remittances (which are highly variable and have been negative in recent years as the Fed has paid more interest on reserves than it has earned on its securities).

The structure has three notable features. First, the federal government depends overwhelmingly on taxes on labor income — individual income taxes plus payroll taxes together account for about 86% of revenue. Capital income (corporate income taxes, plus the portions of individual income tax paid on capital gains and dividends) accounts for a much smaller share. Second, the corporate income tax has shrunk substantially as a share of revenue over the postwar era; in the 1950s it was the second-largest revenue source at about 30% of receipts, and is now around 11%. Third, federal revenue as a share of GDP has been remarkably stable in the postwar era — roughly 17% on average — across periods of high statutory rates and low statutory rates alike. This stability is one of the puzzles of fiscal history; it suggests that base-broadening, behavioral response, and the structure of the tax system together produce a fairly tight long-run revenue/GDP relationship that is difficult to budge with rate changes alone.⁵

16.2.4 Common Misconceptions, Stated Plainly

The opening quiz illustrated five recurring misconceptions. We can now correct each.

"Foreign aid is a major share of the budget." Foreign assistance — the State Department's aid budget, USAID humanitarian and development assistance, military assistance to allies, and refugee programs — totals approximately 1% of federal outlays.⁶ This figure has been remarkably stable across administrations of both parties over decades. Reasonable people disagree about whether 1% is too high, too low, or about right; there is no defensible reading of the data on which the figure is 30%.

"Welfare is a major share of the budget." What most Americans mean by "welfare" varies — sometimes TANF (the cash-assistance program created by the 1996 reform), sometimes SNAP, sometimes Medicaid, sometimes the entire suite of means-tested programs including refundable tax credits. TANF cash assistance is approximately 0.2% of the federal budget — about $17 billion. SNAP is approximately 1.5% — about $100 billion. Medicaid (federal share) is the large one at 10%. Refundable portions of the EITC and CTC are about 1.5% combined. The traditional cash-welfare program is a rounding error in the federal budget. The big anti-poverty programs are health care (Medicaid) and the tax-credit-based system (EITC, CTC), neither of which most Americans picture when they hear "welfare."

"Federal spending on the arts is a major share of the budget." The National Endowment for the Arts ($207 million in FY2024), the National Endowment for the Humanities ($211 million), and the Corporation for Public Broadcasting ($535 million) together total under $1 billion, or about 0.014% of federal outlays. Whether the federal government should fund arts and humanities is a contested values question; whether the funding is large is not.

"Defense is the biggest line item in the budget." Defense at $910 billion is large — larger than the defense budgets of the next ten countries combined. It is also smaller than Social Security alone and smaller than Medicare plus Medicaid combined. Defense is approximately 13% of outlays. Mandatory spending on retirement and health programs is approximately 47%.

"The IRS is enormous." The IRS budget for FY2024 was approximately $14 billion in regular appropriations, with additional multi-year funding from the Inflation Reduction Act of 2022 (a portion of which Congress later clawed back in subsequent legislation). $14 billion is approximately 0.2% of federal outlays. Reasonable people disagree about whether the IRS is adequately funded for its enforcement mission; whether it is a large agency by federal standards is not contested by the data.

These corrections matter politically. A great deal of public-policy debate proceeds as if foreign aid, welfare, and the arts could plausibly close the deficit. Even cutting all three to zero would close approximately 2.5% of FY2024 outlays. The deficit was approximately 28% of FY2024 outlays. The arithmetic is straightforward: there is no path to a balanced budget that does not engage either the major mandatory programs, defense, the revenue base, or some combination of all three. This is not an ideological claim. It is an arithmetical one.

16.3 The Budget Process — What Is Supposed to Happen

The textbook federal budget process, codified primarily in the Congressional Budget Act of 1974, runs as follows.

Phase 1: Executive branch preparation. Beginning in the spring before the fiscal year begins, the Office of Management and Budget (OMB), working with executive agencies, prepares the President's budget request. The request is a multi-volume document — usually about 1,000 pages of summary materials and many thousands of pages of detailed justification — that lays out the administration's proposed funding levels for every account in the federal government.

Phase 2: Submission. The President is required by statute to submit the budget to Congress on or before the first Monday in February. The submission is a major political event: the budget is the administration's most concrete statement of its priorities, and it gets analyzed in detail by congressional committees, by think tanks across the spectrum, and by the press.

Phase 3: Congressional Budget Resolution. Once the President's budget is submitted, the House and Senate Budget Committees draft a concurrent budget resolution — a Congress-internal document, not a law signed by the President — that sets top-line spending and revenue targets and allocates spending among the major budget functions. The resolution is supposed to be adopted by both chambers by April 15. It binds Congress only procedurally; it sets the totals against which appropriations bills will be measured.

Phase 4: Appropriations. With the budget resolution in place, the House and Senate Appropriations Committees and their twelve subcommittees each draft an appropriations bill covering one slice of the discretionary budget. The twelve traditional appropriations bills are: Agriculture; Commerce-Justice-Science; Defense; Energy and Water; Financial Services and General Government; Homeland Security; Interior and Environment; Labor-HHS-Education; Legislative Branch; Military Construction and Veterans Affairs; State and Foreign Operations; and Transportation-Housing and Urban Development. Each bill is supposed to pass both chambers, be reconciled in conference, and be signed into law by the President before October 1, when the fiscal year begins.

Phase 5: Authorizations and reconciliation. In parallel with appropriations, authorizing committees can rewrite mandatory programs (Social Security, Medicare, Medicaid, SNAP, etc.) and the tax code. If the budget resolution included reconciliation instructions — directives to specific committees to produce legislation that achieves certain budgetary effects — those committees draft reconciliation legislation that can pass the Senate with a simple majority, bypassing the filibuster. We discuss reconciliation in detail in §16.6.

Phase 6: Execution. After appropriations are enacted, OMB apportions funds to agencies, agencies obligate the funds (sign contracts, hire staff, send payments), and Treasury disburses cash. The Government Accountability Office (GAO) audits federal agencies and programs. CBO and OMB jointly track the actual outlays as the year unfolds.

That is the process as designed. It works approximately none of the time anymore.

16.4 The Budget Process — What Actually Happens

Since FY1997, the federal government has completed all twelve appropriations bills on time exactly four times. Most years, most appropriations bills are not passed by October 1. What happens instead is one or more of the following.

Continuing resolutions (CRs). When appropriations bills are not enacted by October 1, Congress passes a CR — a stopgap measure that funds federal agencies at the prior year's levels for some additional period. CRs may run for a few weeks (a "short CR") or for several months (a "long CR" or in some years a "full-year CR" that simply funds the entire fiscal year at last year's levels). CRs have major operational disadvantages for federal agencies: they freeze spending at prior-year levels even when missions have changed; they prohibit "new starts" of programs; they create planning uncertainty that ripples through every grant, contract, and hiring decision. Defense officials have testified repeatedly that CRs are operationally damaging. Civilian agencies make similar arguments. Yet CRs are now the modal way the federal government begins each fiscal year.

Omnibus and "minibus" appropriations. When Congress finally does enact full-year appropriations, it typically does so not as twelve separate bills but as a single very large package (an "omnibus") or as a few packages of three or four bills (each a "minibus"). The omnibus form has political advantages — it bundles enough together that members on both sides find at least something they can claim a win on — but pedagogical disadvantages: omnibus bills run thousands of pages and are typically released a day or two before the vote, leaving members and the public little time to read what they are voting on. Critics on both left and right have complained about the omnibus practice for years; both parties continue to use it because the alternative (twelve bills passing on schedule) does not happen.

Government shutdowns. When neither full appropriations nor a CR is enacted by the deadline, the Antideficiency Act requires most federal agencies to cease operations until appropriations are restored. "Essential" personnel (military operations, air traffic control, law enforcement, prison guards, and others) continue to work, with pay deferred until shutdown ends. "Nonessential" personnel are furloughed. Mandatory programs (Social Security checks, Medicare reimbursements, etc.) generally continue, because their authorizing statutes do not depend on annual appropriations, but the offices that administer them may be partially shut down. Major shutdowns:

• November 1995 (5 days) and December 1995 — January 1996 (21 days): Standoff between President Clinton and Speaker Gingrich over the FY1996 budget. The longer shutdown is widely understood to have damaged Republican public standing more than Democrats'.
• October 2013 (16 days): Standoff over funding for the Affordable Care Act, with the Republican-controlled House attempting to defund or delay ACA implementation as a condition of appropriations. The shutdown ended without significant ACA changes.
• December 2018 — January 2019 (35 days, the longest in U.S. history): Standoff between President Trump and the new Democratic House over funding for a southern-border wall. The shutdown ended without a wall-funding agreement; subsequent appropriations included partial border-barrier funding.
• Averted shutdowns 2023–2025: Multiple near-shutdowns averted by short-term CRs, with intra-Republican conflict over discretionary levels playing a central role. Speaker Kevin McCarthy was removed from the speakership in October 2023 in part because he passed a CR to avert a shutdown over the objections of his right flank.

Shutdowns are politically costly to whichever side is perceived to have caused them, but the political cost is rarely large enough or one-sided enough to deter their use. The structural problem is that shutdowns hurt the federal workforce, federal contractors, and members of the public more than they hurt either party's political brand directly.

The structural problem. The deeper issue is that the textbook budget process focuses Congress's attention on the discretionary 24% of the budget, while the mandatory 63% runs on autopilot. Each year's appropriations fight is a fight over the smaller, slower-growing, more-political-football share of federal spending. The mandatory share, growing automatically as more Americans enter Medicare and Social Security, is largely outside the annual cycle. Congress can change mandatory programs — through reconciliation, through committee markups, through standalone authorizing legislation — but doing so requires affirmative legislative action. The default is for mandatory programs to continue. This means that the public-attention bandwidth is overwhelmingly directed at the appropriations cycle, while the much larger fiscal phenomena (Medicare cost growth, Social Security demographics, interest costs, the tax base) get less continuous attention.

It also means that "shutdown" politics are misleading as a measure of government dysfunction. A shutdown can only halt the discretionary fraction of federal activity. Most of the federal government keeps going regardless. This is why even a 35-day shutdown — the longest in history — did not collapse the federal government. It is also why the appropriations process has been allowed to break down without producing a more profound crisis. The crisis exists, but it is mostly invisible: federal employees absorb the cost in delayed pay and uncertain planning; federal contractors absorb it in lost revenue; federal missions absorb it in deferred upgrades and unfilled positions.

16.5 The Debt Ceiling

16.5.1 What It Is

The federal debt ceiling — a statutory cap on the total amount of debt the U.S. Treasury is permitted to issue — was established by the Second Liberty Bond Act of 1917. The original purpose was administrative: prior to 1917, Congress had to authorize each new bond issue individually, which was cumbersome during World War I. The 1917 statute consolidated the authority into a single cap, raising it as needed.

For most of its history, raising the debt ceiling was routine. From 1917 through about 2010, debt-ceiling increases passed with little drama, often as part of larger fiscal legislation. In recent decades, however, the debt ceiling has become a high-stakes political event. The mechanism is simple: the federal government, having already committed to spend and tax under existing laws, runs deficits that must be financed by issuing debt. When the debt ceiling is reached, Treasury can no longer issue new debt to cover spending that Congress has already authorized. Treasury can deploy "extraordinary measures" — accounting maneuvers that buy a few months — but eventually, absent a debt-ceiling increase, the government would either have to default on some of its obligations or stop paying some of its bills.

16.5.2 The Two Honest Sides

This is one of the chapters where steel-manning matters most.

The conservative argument for retaining the debt ceiling. Federal spending and taxation are determined by Congress. The debt is a consequence of those decisions. The debt ceiling, on this view, is the one moment when Congress is forced to confront the consequences of what it has already decided to do. Without the ceiling, the federal government can run open-ended deficits forever, with no procedural moment that forces a serious conversation about whether the trajectory is sustainable. Conservatives who hold this view argue that the debt-ceiling fights of 2011, 2013, and 2023 produced real fiscal restraint that would not have happened otherwise — the Budget Control Act of 2011, with its discretionary caps; the Fiscal Responsibility Act of 2023, with its smaller but real spending limits. The argument is not that default is desirable; it is that the threat of default, used responsibly, produces leverage for fiscal discipline that no other mechanism provides.

The progressive argument for repealing or neutralizing the debt ceiling. Spending and taxation are decided by Congress through the appropriations and authorization processes. The debt is the arithmetic consequence of those decisions. The debt ceiling, on this view, is a redundant veto on choices Congress has already made — a procedural step that adds nothing to fiscal discipline because the underlying decisions have already been taken. The cost of brinkmanship is real: even credible threats of default raise the federal government's borrowing costs (Standard & Poor's downgrade in 2011, Fitch in 2023, Moody's in 2024), damage U.S. financial credibility, and impose real economic cost on the public. A serious fiscal-discipline mechanism would operate at the moment of spending and revenue decisions, not as a separate hostage-taking event over the resulting debt. Progressives in this camp note that other developed democracies do not have a separate debt ceiling and manage their fiscal policy through their budget processes alone.

Common ground. Both sides increasingly agree that the current operation of the debt ceiling is dysfunctional. The disagreement is what to replace it with: a strengthened budget process, an automatic increase tied to appropriations, abolition altogether, or retention with reform.

16.5.3 Recent Crises

2011. Newly elected House Republicans, riding the Tea Party wave of 2010, refused to raise the debt ceiling without commensurate spending cuts. The standoff with the Obama administration nearly produced a default. The resulting Budget Control Act of 2011 raised the ceiling, capped discretionary spending for a decade, and created the "supercommittee" — a bipartisan, bicameral committee charged with finding $1.2 trillion in additional deficit reduction. The supercommittee failed to reach agreement. The failure triggered the "sequester," automatic across-the-board cuts to discretionary spending. Standard & Poor's downgraded U.S. debt from AAA to AA+ for the first time in history, citing political dysfunction rather than fiscal capacity.

2013. A second debt-ceiling standoff combined with the government shutdown over ACA funding. Resolved by a short-term ceiling suspension.

2017. Debt-ceiling suspension as part of a hurricane-relief deal between President Trump, Speaker Ryan, and Senate Democratic Leader Schumer.

2019. A bipartisan two-year budget deal raised the ceiling and discretionary caps.

2021. Democrats raised the ceiling along party lines through a procedural maneuver after a brief standoff.

2023. The McCarthy debt-ceiling negotiation. With Republicans newly in control of the House, Speaker McCarthy negotiated the Fiscal Responsibility Act with President Biden, raising the ceiling in exchange for two-year discretionary caps, claw-back of some unspent Covid funds, work requirements for some SNAP recipients, and partial rescission of IRA-funded IRS enforcement money. The deal passed both chambers with bipartisan majorities. Within five months, dissatisfaction among the right flank of the House Republican Conference contributed to the historic October 2023 motion-to-vacate that removed McCarthy from the speakership.

2024–2025. A debt-ceiling suspension expired in January 2025, putting the government on extraordinary measures into the fall. Negotiations played out alongside a contested 2024 election aftermath.

The pattern across these episodes is consistent. The threat of default has produced some real fiscal-policy outcomes (the BCA caps, the FRA caps). It has also produced real costs: rating downgrades, financial-market disruption, congressional time absorbed by hostage-taking rather than by ordinary fiscal deliberation, and erosion of public confidence in the government's basic functioning. Whether the produced restraint has been worth the produced cost is a contested judgment.

16.6 Reconciliation

16.6.1 What It Is

Budget reconciliation is a procedural mechanism, created by the Congressional Budget Act of 1974, that allows certain budget-related legislation to pass the Senate with a simple majority, bypassing the filibuster. Originally designed to enable the Senate to enforce the spending and revenue targets in the budget resolution, reconciliation has become, over the last twenty years, the predominant channel through which major partisan legislation passes when control of the federal government is unified or near-unified.

The mechanism works as follows. The annual budget resolution, when adopted, may include "reconciliation instructions" directing specified committees to produce legislation that achieves specified budgetary effects (e.g., "the Finance Committee shall produce legislation reducing the deficit by $X over the budget window"). Each instructed committee drafts legislation accordingly. The drafts are bundled into one or more reconciliation bills, which are subject to special procedural rules in the Senate: limited debate (twenty hours), no filibuster, simple-majority passage. Reconciliation bills are subject to constraints — particularly the Byrd Rule, named for Senator Robert Byrd of West Virginia, which prohibits provisions that are not budgetary in nature, that produce no budgetary effect, that have a budgetary effect merely incidental to a non-budgetary purpose, that affect Social Security, or that increase the deficit beyond the budget window (typically ten years).

The Byrd Rule has shaped major legislation in significant ways. The most visible effect is the "sunset" — when reconciliation legislation includes tax cuts or spending increases that, if permanent, would increase the long-run deficit, the legislation must include an expiration date inside the budget window. The 2001 Bush tax cuts, the 2017 Tax Cuts and Jobs Act, and parts of the 2021 American Rescue Plan all included sunsets driven by Byrd Rule constraints.

16.6.2 The Road to Modern Reconciliation Use

Reconciliation was used sparingly in its first two decades. It was the vehicle for parts of the Reagan-era Omnibus Budget Reconciliation Acts (1981, 1990), the Clinton-era OBRAs (1993), and a handful of other measures. In none of these cases was reconciliation the only path to passage; the bills had bipartisan support, and reconciliation was used for procedural convenience rather than as a workaround.

Two events changed reconciliation's role. First, the rise of the routine filibuster. As we discussed in Chapter 8, the filibuster shifted from an occasional tactic to a default for major legislation in the 1990s and 2000s. By the 2010s, almost any contested legislation faced an effective sixty-vote threshold in the Senate. Second, increasing party-line voting in both chambers. As bipartisan coalitions on major legislation became rarer, the path through regular order — where committee markups, conference negotiations, and floor amendments produced cross-party majorities — narrowed. Reconciliation, which sidesteps both the filibuster and (in its modern operation) the elaborate amendment processes of regular order, became the workable alternative.

The result is that almost every major partisan fiscal bill of the last twenty years has been a reconciliation bill, including:

• 2001 Economic Growth and Tax Relief Reconciliation Act ("Bush tax cuts I"). Republican-led, signed by President George W. Bush. Sunset due to Byrd Rule.
• 2003 Jobs and Growth Tax Relief Reconciliation Act ("Bush tax cuts II"). Republican-led. Sunset.
• 2010 Health Care and Education Reconciliation Act. The "sidecar" to the Affordable Care Act, addressing Senate-House differences after Scott Brown's election eliminated the Democrats' sixty-vote majority. Discussed in Chapter 8 as the modern locus classicus of reconciliation strategy.
• 2017 Tax Cuts and Jobs Act. Republican-led, signed by President Trump. Major reduction in corporate tax rate; substantial individual-tax provisions sunsetting in 2025 due to Byrd Rule.
• 2021 American Rescue Plan Act. Democratic-led, signed by President Biden. $1.9 trillion in pandemic-era spending and tax provisions including the expanded Child Tax Credit (which expired due to Byrd-driven sunset).
• 2022 Inflation Reduction Act. Democratic-led, signed by President Biden. Climate, energy, prescription-drug, and tax provisions; the centerpiece of the Biden domestic agenda after the larger Build Back Better proposal failed in the Senate.
• 2025 reconciliation. A Republican-led reconciliation effort, with the dynamics of intraparty negotiation between deficit-hawk and tax-cut-priority factions playing out as of this writing.

The pattern is striking. Major fiscal legislation now passes almost exclusively through reconciliation, on simple-majority lines, in the party that controls the trifecta. Bipartisan major fiscal legislation has become rare. The institutional consequences are real: legislation that would have been negotiated in conference between the parties is now drafted within the majority party, with stylized concessions to attract any votes that might be needed within the caucus rather than across it. Reconciliation has enabled major policy change to occur despite the filibuster, and has simultaneously made that policy change more partisan and more vulnerable to reversal when the opposite party next holds power.

16.7 The Congressional Budget Office and Dynamic Scoring

16.7.1 CBO

The Congressional Budget Office was established by the same 1974 statute that created the modern budget process. Its purpose was to give Congress its own analytical capacity, independent of the executive branch's Office of Management and Budget. CBO is nonpartisan by design and by practice: its director is appointed jointly by the Speaker of the House and the President pro tempore of the Senate (in consultation with the Budget Committee chairs), serves a four-year term, and is selected for technical expertise rather than party. The agency's roughly 275 staff are professional economists, public-finance experts, and policy analysts.

CBO performs several core functions. It produces the annual Budget and Economic Outlook (the "baseline"), projecting outlays, revenues, and deficits under current law over a ten-year window. It "scores" — that is, estimates the budgetary effects of — proposed legislation. It produces analytical reports on long-term fiscal trends, on specific policy proposals, and on cross-cutting questions (the cost of universal preschool, the budgetary effects of immigration reform, the macroeconomic effects of various tax and spending changes). And it provides technical assistance to congressional committees as they draft legislation.

CBO's nonpartisanship is its institutional asset and its institutional vulnerability. When CBO scores a bill in a way that one party finds inconvenient — and this happens regularly to both parties — the affected party often attacks CBO's methods or motives. Republicans have attacked CBO scoring of Reagan-era tax cuts (which CBO projected would lose more revenue than the administration's models predicted), of the 2017 TCJA (CBO projected much of the cost would not be offset by growth), and of various spending bills. Democrats have attacked CBO scoring of the Affordable Care Act (CBO initially projected lower coverage gains than actually materialized), of Build Back Better (CBO scored some provisions less generously than the administration), and of various climate and family-policy proposals. CBO has weathered these attacks because, on average over time, its methods have proven roughly correct and because both parties find CBO useful when its scores are inconvenient for the other party. The ritualized partisan attacks have not, so far, undermined CBO's institutional standing.

16.7.2 Static vs. Dynamic Scoring

The most contested methodological question in budget scoring is the static-vs.-dynamic distinction. Static scoring estimates the direct budgetary effect of a policy change without modeling macroeconomic feedback. A 1-point cut in the corporate tax rate, under static scoring, reduces revenue by an amount equal to 1% of the corporate tax base. Dynamic scoring attempts to model the macroeconomic effects: if the tax cut increases investment and growth, the resulting larger economy produces more taxable income, partially offsetting the static revenue loss.

The argument for dynamic scoring is that real economic policy has real economic effects. Ignoring those effects produces biased estimates that systematically underestimate the value of growth-promoting policies and overestimate the cost of growth-suppressing ones. The argument against dynamic scoring is that the macroeconomic models used to produce dynamic estimates are uncertain, contested, and easy to manipulate to produce favored results. A model with one set of assumptions about labor-supply elasticity, capital mobility, and Federal Reserve response to fiscal policy will produce a much smaller revenue loss for a tax cut than a model with different assumptions. Dynamic scoring, critics say, replaces a transparent though incomplete number with an opaque and disputable one.

The institutional compromise — CBO's longstanding practice — has been to use static scoring as the primary methodology for "official" scores while also producing supplementary dynamic analyses for major legislation. The Joint Committee on Taxation, which scores tax legislation, follows similar practice. Recent debates have included:

• 2017 TCJA. Republican leadership argued that dynamic scoring would show the tax cut largely paying for itself through induced growth. JCT's dynamic analysis projected modest growth effects and a partial offset of the static revenue loss; CBO's analysis was similar. Static-plus-dynamic estimates left the bill substantially deficit-increasing. Empirical post-2017 evidence, while complicated by Covid, has on balance supported the cautious dynamic estimates rather than the larger ones touted by the bill's most enthusiastic advocates.⁷
• 2022 IRA. Democratic leadership pointed to dynamic and behavioral effects of clean-energy tax credits and pharmaceutical-pricing provisions. CBO scored the climate provisions on the assumption of modest macroeconomic effects; subsequent demand for IRA credits has been higher than CBO projected, with mixed implications for the budgetary score depending on whether one focuses on outlays (credits claimed) or on broader economic effects (private investment, capacity build-out).

The dynamic-scoring debate is, at root, a question about the level of analytical confidence Congress should require before it counts macroeconomic effects in its scoring. Both sides have legitimate arguments. The current institutional compromise leans toward conservatism — count direct effects, supplement with dynamic analysis, do not let dynamic estimates drive the budget-process numbers.

16.8 Tax Policy Fundamentals

16.8.1 The Income Tax

The federal individual income tax has a graduated rate structure. For tax year 2024 (single filers, simplified):

• 10% on income up to $11,600
• 12% on income from $11,601 to $47,150
• 22% on $47,151 to $100,525
• 24% on $100,526 to $191,950
• 32% on $191,951 to $243,725
• 35% on $243,726 to $609,350
• 37% on income above $609,350

The rates apply to taxable income — gross income minus the standard deduction or itemized deductions. The standard deduction for single filers is $14,600 in 2024; for married filing jointly, $29,200. Most taxpayers take the standard deduction; about 10% itemize.

Two distinctions matter. The marginal tax rate is the rate that applies to the next dollar of income. The effective tax rate is total tax divided by total income. Because of the graduated structure, the effective rate is always lower than the top marginal rate. A taxpayer whose marginal rate is 24% may have an effective rate of 12% or less. Misunderstandings about marginal vs. effective rates are common in popular debate; "the 37% top rate" does not mean people in that bracket pay 37% of their income.

The Earned Income Tax Credit (EITC) is a refundable tax credit for low-income working families, larger if the family has children. The maximum 2024 credit for a family with three or more qualifying children is approximately $7,830; the credit phases out as income rises. The EITC is one of the largest federal anti-poverty programs, distributing roughly $65 billion annually. Because it is refundable — paid out as cash even when it exceeds the family's income-tax liability — it functions partly as anti-poverty spending and partly as tax reduction.

The Child Tax Credit (CTC) provides up to $2,000 per qualifying child, with a refundable portion ($1,700 in 2024) for families with low or no tax liability. The CTC was temporarily expanded in 2021 (under the American Rescue Plan, with monthly payments and full refundability), reverted to its prior structure in 2022, and has been the subject of recurring reform proposals. The 2017 TCJA's CTC provisions are scheduled to sunset at the end of 2025, with the credit reverting to its pre-TCJA $1,000 per child unless Congress extends current law.

16.8.2 Capital Gains and the Rate-Disparity Question

Capital gains — profits from the sale of investments held for more than a year — are taxed at preferential rates: 0%, 15%, or 20% depending on income level, well below the rates on ordinary income for high earners. This is one of the most contested features of the tax code.

The argument for preferential capital-gains rates: capital gains represent saved-and-invested income that has already been taxed once at the corporate level (for stocks, where corporate profits were taxed before being distributed) and that, if invested in productive capital, contributes to economic growth. Higher capital-gains rates reduce investment, reduce growth, and reduce the long-run revenue base. The optimal capital-gains rate is below the rate on ordinary income because investment is more elastic to taxation than labor.

The argument against preferential capital-gains rates: capital gains are income, full stop. The fact that they are concentrated among high earners (the top 1% of income earners receive a majority of long-term capital gains) means that the rate disparity is a major source of the gap between statutory and effective tax rates at the top. Warren Buffett's famous observation that he paid a lower effective rate than his secretary was driven primarily by this disparity. Capital is also less elastic to taxation than its defenders sometimes claim; the empirical evidence on the rate-elasticity of capital gains realizations is contested.

The disagreement is real and substantive. Both arguments have evidence behind them. The current rate structure represents a compromise between them.

16.8.3 Estate Tax

The federal estate tax applies to the transfer of large estates at death. The 2024 exemption is approximately $13.6 million per individual, $27.2 million per couple. Estates above the exemption pay 40% on the amount above. Because the exemption is so high, approximately 99.7% of estates pay zero federal estate tax. The estate tax raises about $30 billion annually, less than 1% of federal revenue. It is one of the most ideologically charged taxes per dollar collected: defenders see it as a check on dynastic wealth concentration, opponents see it as confiscation of already-taxed income at the worst possible moment.

The 2017 TCJA approximately doubled the exemption; the doubled exemption sunsets at the end of 2025, with the exemption reverting to roughly $7 million per individual unless Congress extends current law. Whether the doubled exemption will be extended is one of the major fiscal questions for 2025–2026 legislation.

16.8.4 Corporate Tax: Statutory vs. Effective

The federal corporate tax rate is 21% (statutory, after the 2017 TCJA cut from 35%). The effective rate paid by U.S. corporations — actual tax paid divided by financial-statement profits — is substantially lower. Estimates vary by methodology; recent studies have placed the effective rate for large U.S. corporations between 9% and 14%. The gap is driven by deductions, credits (especially for R&D, accelerated depreciation, foreign tax credits), and structuring (transfer pricing, foreign subsidiaries, repatriation strategies).

The 2022 Inflation Reduction Act introduced a 15% corporate alternative minimum tax (CAMT) on book income for corporations with average annual financial-statement income exceeding $1 billion. The CAMT was designed specifically to address the largest gaps between statutory and effective rates. Its effects on revenue are still being measured.

Corporate tax incidence — who actually bears the economic burden of the corporate income tax — is one of the most contested questions in public finance. Estimates of the labor share of corporate tax incidence range from 0% to 75%, depending on assumptions. JCT and CBO use a labor-incidence assumption of approximately 25%; some economists argue for higher labor incidence, some for lower. The political stakes are obvious: if corporate tax falls largely on workers, then corporate-tax cuts disproportionately benefit workers, and corporate-tax increases disproportionately fall on them. If corporate tax falls largely on shareholders, the opposite. The empirical evidence does not settle the question definitively in either direction.

16.8.5 The SALT Deduction and Its 2017 Cap

The state and local tax (SALT) deduction allows taxpayers who itemize to deduct state and local income, sales, and property taxes. Before 2017, the deduction was uncapped, and was used most heavily by high-income taxpayers in high-tax states. The 2017 TCJA capped the deduction at $10,000 per return, raising substantial revenue and disproportionately affecting taxpayers in high-tax states (which, not coincidentally, lean Democratic).

The SALT cap has been one of the most politically contested features of TCJA. Democratic representatives from high-tax states have argued for its repeal or significant modification; some Republicans have defended the cap as a needed simplification and a check on the federal subsidy of high state taxation. The cap is scheduled to sunset at the end of 2025 along with other TCJA individual provisions.

16.8.6 Tax Expenditures

A tax expenditure is a provision of the tax code that reduces taxes for a specified activity or group, in a way that is economically equivalent to a direct spending program. The exclusion of employer-provided health insurance from taxable income; the mortgage interest deduction; the deductibility of state and local taxes (within the cap); the preferential rates on capital gains and qualified dividends; the EITC and CTC; the home-sale capital-gain exclusion; tax-deferred contributions to retirement accounts — all are tax expenditures.

The total annual cost of federal tax expenditures, in foregone revenue, is approximately $1.7 trillion per year. This is larger than total discretionary spending. It is roughly equal to total federal individual income tax revenue. Tax expenditures are, in dollar terms, the federal government's largest single category of fiscal action, larger than any individual program.

The political economy of tax expenditures is distinctive. Because tax expenditures appear as reductions in tax rather than as increases in spending, they typically receive less scrutiny than equivalent direct spending would. A program that subsidized employer-provided health insurance with $300 billion in direct spending would face annual appropriations review and intense political contestation. The same subsidy delivered as the exclusion of employer health benefits from taxable income — the largest single tax expenditure, at approximately $300 billion per year — runs largely unexamined. Reformers across the political spectrum have argued for tighter tax-expenditure scrutiny; the institutional incentives have so far favored continuation.

16.9 The Long-Run Fiscal Trajectory

16.9.1 What CBO Projects

CBO's long-term baseline projections, updated each year, paint a consistent picture. Under current law:

• Federal outlays grow as a share of GDP, driven primarily by Social Security and Medicare (as the Baby Boom generation moves through retirement) and by interest on the debt (as the debt stock grows and rates remain higher than 2010s norms).
• Federal revenues are roughly stable as a share of GDP at approximately 17–18%, varying with the tax-policy choices made at the 2025 sunset and afterwards.
• Annual deficits grow, both in absolute terms and as a share of GDP, from the current ~6% to ~7% by the early 2030s and toward 8% in the 2040s.
• Debt held by the public grows from ~99% of GDP today to ~107% by 2029, ~122% by 2034, and continuing higher thereafter.

These projections are subject to substantial uncertainty. Faster-than-projected growth, lower-than-projected interest rates, or unexpected revenue surges could improve the trajectory. Recessions, wars, public-health emergencies, or aggressive tax cuts could worsen it. The central tendency, under current law and historical trends, is rising debt-to-GDP through the 2030s and 2040s.

16.9.2 The Math

The mechanical drivers of the long-run trajectory are well understood:

• Demographic aging. The ratio of workers to retirees fell from approximately 5:1 in 1960 to approximately 3:1 in 2024, projected to fall further to 2.5:1 by the 2040s. Social Security and Medicare are pay-as-you-go programs in their primary financing: current workers' payroll taxes fund current beneficiaries' benefits. As the worker-to-retiree ratio falls, payroll-tax revenue per beneficiary falls, and the programs run cash deficits that must be filled from general revenue (or from drawing down accumulated trust-fund balances, which are themselves IOUs against future general revenue). The Social Security trust fund is projected to be depleted in the mid-2030s under current law, after which benefits would need to be reduced by approximately 20% absent legislation to fill the shortfall.
• Health-care cost growth. Medicare and Medicaid costs grow with the broader U.S. health-care system, which has outpaced GDP growth for decades. The growth has slowed somewhat since 2010 but remains above general inflation. Per-capita Medicare cost growth is the largest single driver of long-run federal-spending growth.
• Interest costs. With debt-to-GDP near 100% and interest rates above 2010s lows, federal interest costs grow mechanically. CBO projects net interest at over $1.3 trillion annually by FY2030 in nominal terms.
• Stable revenue. Without policy change, revenue is projected to grow slightly as a share of GDP (because of bracket creep and TCJA sunsets), but not enough to close the gap with rising spending.

16.9.3 The Three Honest Diagnoses

There are three serious diagnoses of this trajectory in mainstream American political debate. The book presents each at its strongest.

The conservative diagnosis: spending is the problem. The U.S. federal government spent approximately 18% of GDP for most of the postwar era; it spends 23-24% today. Revenue has held roughly constant at 17%. The gap is therefore a spending-side problem. The growth is concentrated in entitlement programs (Social Security, Medicare, Medicaid), and reform of those programs — through some combination of higher retirement ages, means-testing, premium-support models for Medicare, work requirements for Medicaid — is the only durable solution. Tax increases, in this view, slow growth, reduce the long-run revenue base, and shift costs to the productive economy without addressing the underlying spending dynamic. The federal government has grown beyond what a market economy can support without serious cost.

The progressive diagnosis: revenue is the problem. The U.S. is a wealthy country whose federal-spending share of GDP is in line with other developed democracies; lower than France or Germany, comparable to many. What is unusual about the U.S. is its low revenue share — well below the OECD average. The conservative critique focuses on spending growth without acknowledging that revenue has fallen as a share of GDP relative to where it could be at higher rates. The TCJA reduced revenue by roughly 1% of GDP relative to the prior baseline. Tax cuts on high earners and corporations have produced revenue losses without commensurate growth, leaving the underlying spending obligations under-funded. The path forward includes higher rates on high earners, a more progressive corporate-tax regime, restoration of the estate tax, and closure of major loopholes (carried interest, step-up basis, certain corporate provisions).

The centrist diagnosis: both contribute, both must be addressed. Spending growth, especially in entitlements, is genuinely on an unsustainable trajectory. Revenue, especially as a share of GDP, is genuinely below what would balance the long-run obligations the federal government has already incurred. Neither side alone can mathematically close the gap. The Simpson-Bowles framework of 2010 — combining spending restraint, entitlement reform, base-broadening tax reform, and modest rate increases — represents one model of what a centrist solution looks like. It failed politically because both parties' bases rejected it. Any future solution will require either compromise of a similar shape or a forced adjustment driven by markets.

There is a fourth view that has received attention but is less central to mainstream debate.

The "deficits don't matter" view (Modern Monetary Theory and some heterodox economists). Modern Monetary Theory (MMT) argues that a sovereign currency-issuing government like the U.S. faces constraints on its fiscal policy from inflation rather than from financing. Deficits financed in the home currency are not analogous to household debt; the relevant constraint is real-resource availability and inflation. MMT proponents argue that the U.S. has substantial fiscal capacity beyond what conventional budget thinking suggests, and that deficit panic distracts from the real questions of how to use fiscal capacity wisely.

The mainstream economic reception of MMT has been skeptical. Most mainstream economists accept some elements of the diagnostic (sovereign currency issuers do face different constraints than households or firms; the relevant inflation question is real) while rejecting the strong policy claims (the inflation surge of 2021–22 is widely interpreted as evidence that fiscal policy can in fact produce inflation when capacity is constrained). MMT has had real influence on the progressive policy conversation; it has not become the operating framework of mainstream economic analysis.

16.10 The Political Economy of the Budget

Three structural features of budget politics matter beyond the ideology of any particular party.

Concentrated benefits, diffuse costs. A program that delivers $1 billion in benefits to 10,000 recipients and $1 billion in costs to 200 million taxpayers will produce intense advocacy from the recipients (who receive $100,000 each in benefit) and minimal opposition from the taxpayers (who pay $5 each in cost). The asymmetry favors program creation and program continuation, and disfavors program review or termination. This is one of the deepest forces driving long-run spending growth, across both parties' priorities.

Stealth taxes. "Bracket creep" — the unindexed effect of inflation pushing taxpayers into higher tax brackets — was a major source of tax-revenue growth before 1981, when individual brackets were indexed to inflation under the Reagan tax law. Other forms of stealth taxation persist: the Social Security tax base, while indexed to wages, captures more workers as the wage distribution widens; the Alternative Minimum Tax for corporations (and historically for individuals) operates outside the normal rate structure; the income thresholds for various tax provisions are inconsistently indexed. Stealth taxation lets revenue grow without explicit votes. The political-economy consequence is that revenue growth proceeds at the level of administrative implementation rather than at the level of legislative deliberation.

The "starve the beast" theory and its empirical record. "Starve the beast" is the proposition, advanced by some conservatives in the 1970s and after, that tax cuts will eventually force spending cuts because reduced revenue must lead to reduced expenditure. Empirically, the record is mixed. Tax cuts in the 1980s were followed by some spending discipline but also by significant deficits. The 2001 and 2003 tax cuts were followed by spending growth, not contraction, including the Medicare prescription drug benefit, two wars, and a financial-crisis response. The 2017 tax cuts were followed by further spending growth. The empirical case that tax cuts force spending discipline is weak; the empirical case that they reduce revenue without commensurate spending reduction is strong. Whether the failure of "starve the beast" reflects a flaw in the theory or a failure of conservative spending discipline is a subject of internal debate on the right.

16.11 The Moral Dimension

A budget is the most concrete expression of a polity's priorities. Documents lie; budgets do not. What a country spends money on, it values enough to spend money on. What it does not spend money on, it does not — at the level of revealed preference — value to the same degree.

This is why budget debate is moral debate as much as it is technical debate. The choice between funding child care and funding aircraft carriers is not merely a debate about cost and benefit; it is a debate about what kind of country we are. The choice between higher payroll taxes and lower Social Security benefits is not merely arithmetic; it is a debate about intergenerational obligation. The choice between extending the TCJA individual provisions and letting them sunset is not merely a question of revenue; it is a debate about the proper distribution of the federal tax burden.

This book takes no position on what those moral questions ought to be answered. Reasonable Americans, reading the same data, arrive at different conclusions about what the federal budget should look like. That disagreement is healthy. What is not healthy — what undermines the deliberative function of democratic politics — is when the disagreement is conducted on the basis of inaccurate information about what the budget actually is.

You now know what the budget actually is. You know that mandatory programs, mostly for the elderly and the sick, are the largest part. You know that defense is the largest discretionary line. You know that net interest now exceeds defense. You know that revenue comes overwhelmingly from labor income — individual income tax and payroll tax. You know that foreign aid, welfare, and the arts are not, arithmetically, candidates for closing the deficit. You know that the budget process has run off-schedule for thirty years, and that the major fiscal legislation of the modern era has passed almost entirely through reconciliation. You know that the debt ceiling has become a hostage device that produces some restraint and substantial cost. You know that CBO is the institutional analytical authority and that its scoring is contested across both parties' positions when it inconveniences them. You know that the long-run trajectory points toward a higher debt-to-GDP ratio than the U.S. has carried since World War II.

What you should do with that knowledge is up to you. The next step is yours, and it is political: which of the three serious diagnoses — conservative, progressive, centrist — best describes the situation you observe? What kind of trade-offs are you willing to make? Whose interests do you weigh more heavily, and why? Those are the questions democratic citizens have to answer. They are also the questions you cannot answer responsibly without the numbers you now have.

The chapter closes where it began: the budget is the most concrete expression of national priorities. We have spent ten thousand words on the institution. The institution exists to produce documents that, in the end, encode answers to a moral question: What do we value? That question belongs to you.

Where to Go Next

The next chapter (17) opens Part III, the politics chapters, beginning with political parties as institutional structures. Many of the partisan dynamics that produce the budget patterns described here — the rise of party-line voting, the breakdown of bipartisan fiscal coalitions, the use of reconciliation as a partisan tool — are best understood through the lens of party as an organization. Chapter 17 sets that stage.

For deeper engagement with the material in this chapter, the exercises, case studies, and further reading documents in this folder provide concrete applications, contrasting examples, and a curated reading list across the full ideological spectrum.