Let’s be honest: when most of us hear "trillions," our brains just kind of shut off. It’s too big. It’s like trying to imagine the distance to another galaxy while you're just trying to balance your checking account. But the reality of how much is federal budget isn't just a dry line item in a CBO report. It's the actual plumbing of the American economy.
In the fiscal year 2025, which we just wrapped up, the U.S. government spent a staggering $7.01 trillion. To put that in perspective, the entire economic output of the country (GDP) was about $30.36 trillion. That means the federal government is responsible for nearly a quarter of all economic activity in the United States.
📖 Related: Wal Mart Stores Inc Stock Price: Why Everyone Is Paying Attention to WMT Now
Where the Money Goes (It's Not Where You Think)
Most people assume foreign aid or "government waste" eats up the pie. It doesn't. Not even close. If you look at the 2026 projections, the big three—Social Security, Health (Medicare/Medicaid), and National Defense—command the vast majority of every dollar.
Social Security alone accounts for roughly 22% of spending. It’s the "third rail" for a reason. Then you have the interest. This is the part that’s actually getting scary. For the first time, net interest on the public debt has surpassed $1 trillion annually. We are effectively paying a trillion dollars a year just for the "privilege" of having borrowed money in the past.
- Social Security: ~$1.5 trillion
- National Defense: $904 billion (projected for FY 2026)
- Medicare: ~$966 billion
- Net Interest: Over $1 trillion
The rest? It's a scramble for what's left. Education, transportation, and veterans' benefits are vital, but they are relatively small slices compared to the entitlement and interest giants.
How Much Is Federal Budget for 2026?
We are currently in Fiscal Year 2026, which started on October 1, 2025. It began with a record-breaking 43-day government shutdown that only ended in mid-November. Because of that chaos, the numbers are a bit of a moving target, but the Congressional Budget Office (CBO) is projecting total outlays to hit approximately $7.29 trillion for the full year.
Revenue—the money actually coming in from taxes and tariffs—is expected to be around $5.58 trillion.
Do the math.
The gap between those two numbers is the deficit. For 2026, we’re looking at a projected deficit of $1.71 trillion. While that sounds bad (and it is), it’s technically a slight improvement over some previous years because of a massive surge in customs duties.
The Tariff Factor
Something happened in 2025 that fundamentally shifted the budget conversation: tariffs. The government has seen a 280% to 300% increase in customs duties compared to previous years. In just the first two months of FY 2026, the Treasury collected $48 billion in tariffs.
Whether you love them or hate them, they are now a primary revenue driver. Some analysts at the CBO estimate that if current policies hold, tariff revenues could reduce primary deficits by $2.5 trillion over the next decade. However, that’s a big "if," as it depends on trade volumes staying steady despite the higher costs.
Discretionary vs. Mandatory Spending
Understanding the budget requires knowing the difference between what Congress must spend and what it chooses to spend.
Mandatory spending is on autopilot. Laws like the Social Security Act mean the government has to pay out benefits to everyone who qualifies. You don't vote on this every year. It just happens. This makes up about two-thirds of the budget.
Discretionary spending is what the fight is always about. This is the money Congress argues over every autumn. For 2026, the White House requested about $1.69 trillion in discretionary funding.
The priorities have shifted significantly under the current administration. For instance:
- Defense is seeing a proposed 13% increase, aiming for over $1 trillion by FY 2027.
- Homeland Security saw a massive 65% jump to $107.4 billion to focus on border operations.
- The State Department was hit with an 83% cut in its base discretionary funding.
It’s a "guns over butter" approach that has reshaped the 2026 fiscal landscape.
✨ Don't miss: Legal Consideration: What Most People Get Wrong About Contracts
The Debt Clock is Real
As of early 2026, the total public debt is closing in on $38 trillion.
It’s easy to ignore. Until it isn't. When interest rates stay elevated—with 10-year Treasuries averaging around 4.2%—the cost of carrying that debt becomes a line item that competes with the military and schools. We are in a cycle where we borrow money to pay the interest on the money we already borrowed.
What This Means for Your Wallet
The federal budget isn't just a Washington problem. It trickles down.
When the government runs a $1.7 trillion deficit, it has to sell bonds to cover the gap. This can push interest rates higher for everyone else. If the government is competing for capital, your mortgage or car loan might stay more expensive for longer.
On the flip side, the "One Big Beautiful Bill" (OBBB) passed in 2025 included tax cuts for tips, overtime, and Social Security benefits. The CBO actually revised its growth projections upward because of this, expecting 2.2% GDP growth in 2026. They're calling it a "sugar high" from tax cuts and spending, but for the average worker, it means more take-home pay in the short term.
Actionable Insights for Navigating 2026
Since the federal budget is currently driven by high interest payments and shifting tax policies, here is how you should handle your personal finances:
- Lock in Fixed Rates: With the government projected to keep borrowing heavily, long-term interest rates are unlikely to plummet. If you're looking at a mortgage or refinancing, don't wait for a "2% world" that isn't coming back soon.
- Monitor Tariff-Impacted Goods: If your business relies on imports, the 2026 budget confirms that high tariffs are the new baseline. Diversify your supply chain now.
- Tax Strategy: Take advantage of the new exemptions for overtime and tips. Ensure your payroll withholding is adjusted so you aren't giving the government an interest-free loan until next April.
- Watch the 3% Target: There is a bipartisan push in Congress right now to cap the deficit at 3% of GDP. If this gains traction, expect sudden, sharp cuts to federal programs or "hidden" tax increases through fee hikes.
The federal budget is essentially a giant, leaky bucket. We're pouring in more than $5 trillion, but we're trying to spend $7 trillion. Until the "Big Three" (Social Security, Health, and Interest) are addressed, the numbers will only get larger. Understanding the scale of this helps you understand why the economy feels the way it does right now.