What Is the Budget Deficit? FY2024, TCJA Costs, and Federal Spending Explained
The federal budget deficit hit $1.8 trillion in fiscal year 2024, the third-highest on record outside of COVID years. Here is what a det-size:1rem;max-width:640px;margin:0;"> The federal budget deficit hit $1.8 trillion in fiscal year 2024, the third-highest on record outside of COVID years. Here is what a deficit is, where the money goes, and what it means for long-term fiscal health.
- The FY2024 deficit was $1.8 trillion — spending $6.8T vs. revenue $4.9T; the deficit equals 6.4% of GDP, the third-highest peacetime level on record
- Roughly two-thirds of all federal spending is mandatory (Social Security, Medicare, Medicaid, interest) — politicians who claim to cut the deficit by targeting discretionary spending are addressing the smaller share
- Interest on the national debt now exceeds $1 trillion annually, surpassing the defense budget — it is the fastest-growing major spending category and crowds out other priorities
- The US has not run a budget surplus since FY2001; both parties have added to the debt — Republicans via tax cuts, Democrats via spending; the "big beautiful bill" is projected to add $3-4T more
What Is a Budget Deficit?
A federal budget deficit occurs when the government spends more money in a fiscal year than it collects in taxes, fees, and other revenue. The federal fiscal year runs from October 1 to September 30. In FY2024 (ending September 30, 2024), the government collected approximately $4.9 trillion in revenue and spent approximately $6.8 trillion, producing a deficit of roughly $1.8 trillion.
The deficit is not the same as the national debt. The deficit is the annual shortfall; the debt is the total accumulated sum of every past deficit minus any surpluses. The US has not run a budget surplus since FY2001. Every year of deficit adds to the total debt.
To cover the deficit, the Treasury borrows money by selling US Treasury securities (T-bills, notes, and bonds) to investors. This is how the government finances spending that exceeds revenue — essentially taking out loans that must eventually be repaid with interest.
Where Does the Money Go? Mandatory vs. Discretionary
Federal spending divides into two broad categories. Mandatory spending is determined by existing law and does not require annual appropriations votes. It includes Social Security (~$1.5 trillion), Medicare (~$1 trillion), Medicaid (~$600 billion), and interest on the debt (~$1 trillion). Together, mandatory spending plus interest consumes roughly two-thirds of all federal outlays.
Discretionary spending is what Congress appropriates each year through the budget process. The largest discretionary item is defense (roughly $850 billion in FY2024), followed by education, transportation, health agencies, foreign aid, and other programs. Non-defense discretionary spending is about $700-800 billion. When politicians talk about “cutting spending,” they typically mean discretionary programs — but these account for only about one-third of the budget, meaning even deep cuts there have limited impact on the overall deficit without addressing mandatory spending.
Why the deficit grew: The FY2024 deficit increased significantly compared to FY2023 ($1.7T → $1.8T) primarily because of higher interest costs on the national debt (driven by the Federal Reserve’s rate hikes), new spending programs, and the ongoing cost of entitlement programs as the population ages.
FY2024 Federal Budget Breakdown
| Category | Approx. Amount | Type |
|---|---|---|
| Social Security | ~$1.5 trillion | Mandatory |
| Medicare & Medicaid | ~$1.6 trillion | Mandatory |
| Interest on debt | ~$1.0 trillion | Mandatory |
| Defense | ~$850 billion | Discretionary |
| Non-defense discretionary | ~$750 billion | Discretionary |
| Other mandatory | ~$1.0 trillion | Mandatory |
The TCJA and Revenue Loss
The Tax Cuts and Jobs Act of 2017 (TCJA) was the largest tax overhaul since the 1980s. It permanently cut the corporate tax rate from 35% to 21% and temporarily reduced individual income tax rates across brackets. The Joint Committee on Taxation estimated the TCJA reduced revenues by approximately $1.5 trillion over 10 years.
The individual provisions of the TCJA are set to expire after 2025. Extending them — as Republicans are pursuing through the 2025-2026 reconciliation process — would cost an additional $3-4 trillion over 10 years according to the Congressional Budget Office. The core fiscal debate in Washington is whether those extensions should be accompanied by equivalent spending cuts, or whether the revenue loss should simply be added to the national debt.
Frequently Asked Questions
What is the difference between the deficit and the national debt?
The deficit is the annual gap — spending minus revenue in a single fiscal year. The debt is the total accumulated sum of all past deficits. FY2024’s $1.8 trillion deficit added to the existing $36+ trillion national debt. Think of the deficit as the annual overdraft and the debt as the total credit card balance.
What did the 2017 Tax Cuts and Jobs Act cost?
The TCJA reduced revenues by approximately $1.5 trillion over 10 years. Extending its expiring individual provisions past 2025 would cost another $3-4 trillion, per the CBO. Republicans argue that economic growth from lower taxes partially offsets revenue losses; independent forecasters have found the growth effects were real but modest, not enough to offset the full revenue cost.
What is discretionary vs. mandatory spending?
Mandatory spending (Social Security, Medicare, Medicaid, interest) is set by law and does not need annual approval. It is about two-thirds of total federal spending. Discretionary spending (defense, education, transportation, foreign aid) requires annual appropriations. Because mandatory spending is so large and politically protected, reducing the deficit meaningfully requires either addressing entitlements, raising revenue, or both.
