On paper, the federal budgeting process is relatively straightforward. Each year, Congress is supposed to set an overall budget framework and then pass a series of spending bills before the fiscal year begins on October 1. If that happened consistently, the process would be predictable and easier for the public to follow.
In practice, it rarely works that way. Deadlines are missed, temporary measures are used, and major decisions are pushed to the last minute. At the same time, different categories of spending operate under completely different rules, making the process difficult for even engaged citizens to follow.
We try to make the explanation below as nontechnical as possible, but forgive us because there’s no way to make it simple. The process is complicated, opaque, and often poorly understood. Unfortunately, that confusion can make accountability harder. Citizens should understand the system well enough to ask better questions of elected officials and demand a more disciplined process. At this point, both parties need to work together and have integrity about reducing our deficits, even with the difficult trade offs required.
The Main Components of the Federal Budget
The most important distinction is that Congress does not fund all spending the same way.
Discretionary Spending
Discretionary spending is the portion of the budget Congress decides on each year through the appropriations process. It includes defense, education, transportation, scientific research, federal law enforcement, and most federal agencies. Lawmakers are supposed to pass twelve separate appropriations bills annually to fund these activities.
This is the portion of the budget that dominates political news coverage. Government shutdown threats, funding deadlines, and late-night negotiations are usually fights over discretionary spending.
Mandatory Spending
The larger portion of federal spending works differently. Programs such as Social Security, Medicare, Medicaid, and many income-support programs operate automatically under laws already on the books. Congress does not reapprove this spending every year. If more people qualify for benefits or healthcare costs rise, spending rises automatically unless Congress changes the underlying laws.
This is one reason long-term deficits are difficult to control. The fastest-growing portions of the budget are often not revisited during annual funding debates. Yet these are the very areas policymakers eventually must address if they are serious about stabilizing the debt.
Taxes and Revenue: The Other Half of the Budget
Federal budgeting is not only about spending. The government’s fiscal position is shaped by both spending levels and the amount of revenue collected through taxes. Congress controls federal tax policy separately from the annual appropriations process. Tax laws determine how much revenue the government raises from individuals, corporations, payroll taxes, capital gains, tariffs, and other sources.
Because taxes operate through permanent or multi-year laws rather than annual funding bills, they often receive less attention during shutdown fights and appropriations debates. Yet tax policy can have an enormous effect on deficits and debt over time.
Over the past several decades, major fiscal legislation has frequently involved both sides of the equation at once: changes in tax rates alongside changes in spending. Some lawmakers prioritize lower taxes to encourage investment, economic growth, or individual choice. Others prioritize higher revenue to support government programs or reduce deficits. In practice, long-term fiscal stability usually depends on some combination of economic growth, spending discipline, and sufficient revenue collection.
One reason budget debates become so polarized is that many people prefer solutions focused primarily on the other side of the ledger. Some voters believe deficits can be solved mainly through spending cuts, while others believe taxing high earners alone can close the gap. The scale of modern deficits makes both claims difficult on their own.
Historically, the United States has collected federal revenue equal to roughly 16–20% of GDP, though that fluctuates depending on economic conditions and tax policy. Spending, however, has increasingly exceeded that range, particularly as healthcare costs, retirement programs, and interest payments grow. This creates a structural mismatch: promises and obligations rise faster than the revenue system designed decades earlier to support them.
Tax policy also interacts closely with reconciliation rules, which is one reason many large tax packages move through the reconciliation process. Changes to tax rates, deductions, credits, and business incentives can significantly alter projected deficits over time.
Whether the country ultimately chooses higher taxes, slower spending growth, faster economic growth, or some combination of all three, long-term fiscal stability almost certainly requires confronting both sides of the equation rather than focusing only on one.
Interest on the Debt
Interest payments on the national debt are now among the largest and fastest-growing parts of the federal budget, approaching or exceeding annual defense spending in some projections. Unlike most spending categories, these payments are not optional. They reflect past borrowing combined with current interest rates. As debt grows and rates rise, interest costs consume a larger share of federal resources, leaving less room for everything else.
The Difference Between Authorizations and Appropriations
One major source of confusion is that Congress often separates creating a program from funding it. Authorization bills establish or continue programs and define what they are allowed to do. Appropriations bills actually provide the money. For example, Congress may authorize a defense program, infrastructure initiative, or education effort for several years, but funding still typically requires annual appropriations.
This adds to the confusion and opacity of how Congress works because political debates sometimes treat the creation of a program as identical to fully funding it. In reality, Congress often revisits funding decisions separately and repeatedly.
How the Process Is Supposed to Work and what Actually Happens Instead
Under what is often called “regular order,” Congress would first adopt a budget resolution establishing broad fiscal targets. It would then pass the twelve appropriations bills before the start of the fiscal year on October 1. Agencies would know their budgets in advance, long-term planning would improve, and lawmakers would debate spending priorities in a more orderly way. That is how we would like to see things done. It requires debate, compromise, and the intention to balance revenue with spending.
Unfortunately, Congress has struggled to follow regular order for decades. The last time all appropriations bills were completed on time was in 1997. Instead, lawmakers rely heavily on temporary measures and massive bundled legislation. These include:
Continuing Resolutions
A continuing resolution, or CR, temporarily extends current funding levels when Congress misses a deadline. CRs prevent immediate shutdowns but create uncertainty because agencies cannot plan effectively under short-term funding extensions.
Omnibus Bills
Omnibus bills combine multiple appropriations bills into one enormous package, often negotiated behind closed doors and passed quickly with limited time for review. This has become standard practice despite repeated complaints from lawmakers themselves.
Government Shutdowns
If Congress and the president fail to enact funding or a continuing resolution, parts of the federal government shut down temporarily. Shutdowns typically affect discretionary programs rather than mandatory spending, which further contributes to public confusion about what parts of the government are actually being debated.
Budget Reconciliation: One of Congress’s Most Powerful Tools
One of the biggest modern budget tools is reconciliation. Budget reconciliation allows certain tax, spending, and debt-related legislation to pass the Senate with a simple majority vote rather than the usual 60 votes required to overcome a filibuster. Because of this, reconciliation has become one of the primary ways major fiscal legislation moves through Congress.
Large portions of the Bush tax cuts, the Trump tax cuts, the Affordable Care Act modifications, the Inflation Reduction Act, and several COVID-era fiscal packages all relied on reconciliation procedures.
Reconciliation is especially important because it allows Congress to make large structural fiscal changes without bipartisan supermajorities. That makes it one of the few mechanisms capable of addressing taxes, entitlement spending, or deficit reduction at scale.
The Byrd Rule
Reconciliation is not unlimited. The Senate’s Byrd Rule restricts provisions that are considered primarily non-budgetary. As a result, lawmakers often try to structure policies in ways that qualify under reconciliation rules, while other proposals cannot use the process at all. This is one reason some legislation appears unusually complicated or temporary.
The Debt Ceiling: Often Confused With Spending
Another major source of public confusion is the debt ceiling. The debt ceiling does not directly authorize new spending. Instead, it limits the Treasury’s ability to borrow money needed to finance obligations Congress has already approved. Appropriations and tax laws determine how much money the government spends and collects. If spending exceeds revenue, borrowing fills the gap. The debt ceiling governs whether Treasury can continue issuing debt to meet those obligations. Political debates often blur these separate steps together, which contributes to misunderstanding about deficits and borrowing.
Emergency Supplemental Spending
Not all federal spending flows through the normal annual appropriations process. Congress frequently passes supplemental spending bills for emergencies such as: wars, natural disasters, pandemics, or international crises. Examples include major COVID relief legislation, disaster recovery packages, and military aid bills. These measures can involve hundreds of billions or even trillions of dollars and are often treated differently from ordinary budget caps or procedural limits because lawmakers view them as urgent. While emergency spending is sometimes necessary, repeated reliance on supplemental bills can make long-term budgeting less transparent.
PAYGO, Sequestration, and Budget Enforcement Rules
Congress has attempted various forms of fiscal discipline over the years.
PAYGO, short for “pay-as-you-go,” generally requires new tax cuts or mandatory spending increases to be offset elsewhere so they do not worsen projected deficits. In practice, Congress sometimes waives or bypasses these rules, particularly during politically urgent moments.
Sequestration refers to automatic, across-the-board spending cuts triggered when budget targets are missed. The most famous example followed the Budget Control Act of 2011, which imposed automatic cuts after lawmakers failed to reach broader deficit agreements.
Sequestration was controversial because it applied broad reductions mechanically rather than prioritizing programs strategically. Still, it represented one of the few modern attempts to force fiscal restraint through automatic enforcement.
Why the System Creates So Much Confusion and Why It Keeps Working This Way
The structure of the federal budget makes it difficult for citizens to understand what actually drives deficits and debt. Most public attention focuses on annual discretionary fights because those generate visible deadlines and shutdown threats. Yet mandatory spending and interest costs are the larger long-term drivers.
At the same time, Congress increasingly relies on: continuing resolutions, omnibus bills, reconciliation packages, emergency supplementals, and debt ceiling confrontations, rather than a predictable regular-order process. The result is a fragmented system where the most visible political fights are not always about the largest fiscal pressures.
The current process persists largely because it aligns with political incentives. Short-term funding extensions delay difficult tradeoffs. Omnibus bills reduce accountability by packaging many decisions together. Reconciliation allows major legislation to pass with narrower majorities. Emergency supplementals avoid some normal constraints. Debt ceiling confrontations create leverage for political negotiation. Meanwhile, reforms to mandatory spending or tax policy often involve substantial political risk because they affect large numbers of voters directly. The system therefore tends to prioritize short-term continuity and political flexibility over long-term planning.
What Could Improve the Process
There is no single reform that would fix federal budgeting, but several changes could improve discipline, transparency, and long-term planning.
Automatic Continuing Resolutions With Consequences
One widely discussed reform is an automatic continuing resolution that prevents shutdowns by temporarily extending funding when deadlines are missed. On its own, however, this could encourage delay. A stronger approach would gradually reduce funding levels the longer Congress fails to complete appropriations, creating steady pressure to act.
Stronger Budget Enforcement
Congress could strengthen PAYGO rules, adopt more credible long-term deficit targets, or create automatic correction mechanisms when debt paths significantly worsen. These systems are imperfect, but they can force lawmakers to confront tradeoffs earlier rather than indefinitely postponing them.
Multi-Year Budgeting
A shift toward biennial or multi-year budgeting could reduce the constant cycle of short-term funding crises and create more time for program oversight and long-term evaluation.
Greater Focus on Mandatory Spending and Interest
No serious fiscal reform is possible without regularly revisiting the laws governing major entitlement programs and acknowledging the growing burden of interest costs. Demographics, healthcare inflation, and debt-service expenses are central to the long-term fiscal picture whether politicians want to discuss them or not.
The Bottom Line and Call to Action
The federal budget is not one unified process. It is a combination of annual appropriations, automatic spending programs, tax laws, borrowing authority, reconciliation rules, emergency legislation, and debt-management procedures operating under different rules and incentives. Understanding that structure is crucial because the most visible political fights are not always the largest drivers of long-term debt.
If you want a more honest national conversation about deficits and fiscal stability, ask elected officials harder questions:
- How would they address mandatory spending growth?
- How would they handle rising interest costs?
- What tradeoffs are they willing to make?
- What will they cut and how will they increase revenues?
- Are they relying on temporary fixes or structural reforms?
- Do their proposals address the whole budget or only the politically convenient parts?
There are no painless solutions at this stage. Stabilizing the country’s fiscal path will likely require compromises, tradeoffs, and longer-term thinking from both political parties and the public alike. But citizens can still change incentives. If voters consistently demand seriousness, transparency, and long-term planning instead of perpetual crisis management, it becomes harder for policymakers to avoid the real issues driving the debt.
We believe that the way Congress currently operates is broken, to the point of negligence to our country. Please let your representatives know that you expect more, even if it requires bipartisan compromise. There’s no other way to make the math work or to keep us strong over the long term.