Federal Budget 101, Part 4 of 5: Putting it all Together

Federal Budget 101, Part 4 of 5: Putting it all Together

Understanding the Federal Budget: The Process, Revenue, Expenditures, Deficits

Part 1: The Budget Overview and Process
Part 2: Revenue
Part 3: Expenditures
Part 4: Putting it all Together (this page)
Part 5: Deficits and the Debt

Part 4 of a 5-part Series: Part 4: Putting Revenue and Expenses Together to Form a Budget


This chart shows an overview of the president’s proposed 2015 budget, combining receipts and disbursements. The terminology used in the chart can be misleading, though. For receipts, the chart uses the term “revenue”. This means that the amount of borrowing needed to pay for disbursements (or spending) is labeled as “revenue”. This is the amount of deficit spending for the year, something that most people would not classify as “revenue”. Other than the use of terminology that may be misleading, this chart shows how the different pieces of the budget fit together.

One important piece of the budget is not included in any of these charts. It is a hidden budget item, and it is quite large. It is the budget item known as tax expenditures.

Tax expenditures have the same effect on the budget as other spending items, except that they don’t involve any money being paid out. Instead, they are in the form of a decrease in revenue. They are tax breaks.

Tax breaks come in many different forms. They provide a safety net for lower-income individuals, but this type of tax break is only a small percentage of all tax breaks. Tax breaks in general benefit rich individuals and corporations more than they benefit the poor and middle-class. Some types of tax breaks are theoretically designed to promote certain types of behavior, for businesses as well as for individuals. Other types of tax breaks are designed to promote certain types of industries.

Tax expenditures do not get the attention they deserve in budget negotiations, partially because they are a hidden cost for the government. But they also include what we know as tax loopholes. This is an important consideration for taxpayers. Consider that each politician tends to have his or her favorite “pork” project; that politicians are beholden to large political donors; that corporate leaders are increasingly involved in writing tax laws; that corporations are getting tax breaks for taking wealth and jobs out of the country; and that this is all legal thanks to the Citizens United ruling.

Tax expenditures make up a very large portion of the budget, even if it is a hidden portion. As you can see from the bar graph below, the total of tax breaks is more than the entire discretionary budget of the United States – more than the entire combined budget of the military, education, veterans’ benefits, and the like.

Think about the implications of that statement.

Next up: Part 5: Deficits and the Debt

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Jerry Wyant