Every year federal, state, and local governments must create budgets. A budget is a plan for raising, managing, and spending money. For the federal government, the president must present a proposed budget to Congress by the first Monday in February. Congress reviews the budget and must pass it in the same way it would any other bill. Federal revenues come mainly from income taxes, payroll taxes, and excise taxes. The federal government spends its money on Social Security, Medicare, national defense, interest on the national debt, and many other programs.

State governments receive some revenue from the federal government. Sales taxes, contributions, and income taxes are other sources of revenue. Seven states do not have a state income tax. Local governments receive revenue from the federal government and state government. Other sources of revenue include property taxes, sales taxes, fines, and fees.

Governments do not always spend exactly what they receive. The government enjoys a surplus when it spends less than it collects in revenues. When it spends more than it collects, there is a deficit. When the federal government runs a deficit, it must borrow money so it can pay its bills. When spending equals revenues, the government has achieved a balanced budget. Many state and local governments are required by law to have a balanced budget.