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Federal Budget

Federal Budget

The Federal Budget and Debt
(Sources: Congressional Research Service, "Red Ink" by Wall Street Journal Economist David Wessel, and Office of Management and Budget)

Spending and Debt

It is clear to most Americans that the government simply cannot continue to spend so much money. From 2008 until 2011, federal spending has increased nearly 30 percent. Now about 40 cents of every dollar that the federal government spends is borrowed. Deficits are higher than they have been at any time since World War II.

Congress and the President have failed to pass a budget since 2008.  While the House of Representatives continues to pass a budget each year, it has been more three years since the Senate under the leadership of the Democrats has passed their version.  This irresponsible failure has added to the fiscal mess our country is in. We will not solve these problems with a single bill, but we must continually make progress to restore fiscal sanity.

In February of 2011, I voted for H.R. 1, which passed the House and would take non-security, discretionary spending back to 2008 levels. For most programs, that level of funding will be a significant reduction from the inflated 2010 levels.  Those higher levels cannot be sustained.

The next challenge is to pass a budget for 2013.  President Obama has sent Congress his proposals, but his budget does not take the serious steps that are necessary to get the country back on track. I hope that the House will do better.

Between now and the end of the year Congress will be working on a solution for the automatic cuts set to take effect on January 1, 2013. I believe that a top priority must be to get defense off of the table. I also hope that we can enact some of the key funding limitations already passed by the House dealing with the health care bill, EPA regulations, and abortion funding.

Many difficult decisions must be made, but I believe that Congress must remember that every dollar it spends is either taken from a taxpayer who earned it or borrowed – with interest – for future generations to repay. We cannot correct all of the mistakes of the past at once, but we have to get started now at putting the country on a fiscally responsible path.

 

Federal spending spree

In addition to being too heavy-handed, for the past two years the government has been on a spending spree with few results to show for it.  The 2009 stimulus, which I voted against, is a good example.  While President Obama claimed the stimulus bill would create 3.5 million jobs, the nation has lost a total of 2.7 million since it went into effect.  In fact, according to White House data, 49 states and the District of Columbia have lost jobs since the stimulus was enacted. 

 

Deficit is swelling and debt is skyrocketing

Spending more money than the government takes in through revenues is deficit spending, and the federal deficit was three times higher in 2009 than it was in 2008.  In fact, the U.S. government tied an all-time deficit spending record in August 2009.  Long-term deficits will drive up interest rates for consumers, raise prices of goods and services, and weaken America’s competitiveness and economic security.

When there is a deficit, the government must borrow the money it needs to pay its bills.  This borrowed money constitutes our national debt, which currently stands at $15.8 trillion and is growing at rates that have not been matched since World War II. 

In early February 2010, the debt ceiling was raised to $14.3 trillion – roughly the size of the entire U.S. economy. It is the fifth such increase in the past few years.  Each American’s share of that debt is $46,319.  Each household’s share is $121,982.

The Treasury has recently reported that the federal government took in nearly $260 billion in receipts in June of 2012, which is the highest level for June since 2007.  However, government outlays also grew from $293 billion in June of Fiscal Year (FY) 2011 to $320 billion in June of FY12.  To fund this incredible amount of deficit spending, the U.S. government borrowed $3.6 billion a day in 2011, or about $11,500 for ever person in the country. About half of that borrowed money came from overseas.

Growing our economy
 
Deficit spending that leads to a doubling of the debt is no solution to jump-starting our economy, creating jobs, or running the government.  It is my hope that Democrats and Republicans can come together to bring real fiscal responsibility and do what’s right for families, for small businesses, and for our country’s future.  But, ultimately, it will be you and other hard-working Americans that strengthen the economy and bring our country to prosperity.  Congress needs to make policies that recognize and reward America’s natural entrepreneurship rather than stifling it.

Federal spending is generally divided into the categories of discretionary, mandatory, and net interest. 

Discretionary Spending

Discretionary spending is provided through annual appropriations acts and is often further divided into defense and non-defense categories.  Federal spending in 2010 is estimated at just under a quarter (24.5%) of the U.S. economy, as measured by gross domestic product (GDP).  Federal spending since 1962 has averaged about a fifth of GDP.  Discretionary spending accounted for 37.8% of total outlays in 2010, as extraordinary federal responses to financial turmoil sharply increased mandatory spending (56.15% of outlays in 2010), reducing discretionary spending's share of total spending. Net interest accounted for 6.1% of federal outlays in 2010.

In 1962, discretionary spending accounted for 47.2% of total outlays and was the largest component of federal spending until the mid-1970s.  Since then, discretionary spending as a share of federal outlays and as a percentage of GDP has fallen.  The long-term fall in discretionary spending as a share of total federal spending is largely due to rapid growth of entitlement outlays and slower growth in defense spending relative to other federal spending in past decades.

Mandatory Spending

Even with the failure to pass a budget, nearly two-thirds of annual federal spending is on autopilot and doesn't require an annual vote by Congress. This autopilot spending, also known as mandatory spending, accounts for 63 percent of the money government spends, is on programs like Social Security, Medicare and Medicaid, food stamps, and interest payments on our debts. Every penny of those automatic expenditures is spent without any affirmative vote from Congress.

Mandatory spending (e.g., Social Security, Medicare, Medicaid) is controlled by laws other than annual appropriations acts and is spent automatically.  In 2011, mandatory spending accounted for over half of total federal spending and over an eighth of gross domestic product (GDP).  Social Security accounted for a fifth of federal spending.  Medicare and the federal share of Medicaid, the fastest growing components of mandatory spending, together accounted for 23% of federal spending. Those three programs, therefore, made up over 43% of federal spending.  The composition of mandatory spending has changed significantly over the past 40 years.  In 1962, before the 1965 creation of Medicare and Medicaid, mandatory spending was less than 30% of all federal spending.  At that time, Social Security accounted for about 13% of total federal spending or about half of all mandatory spending.

Net Interest

Net Interest represents the money the U.S. must pay to service its federal debt.  Federal debt is composed of debt issued by the Treasury (Treasury securities) and debt securities issued by other federal agencies (agency securities). Currently, about 36% of federal debt is held in various government accounts.  For example, the two Social Security trust funds currently hold about $2.5 trillion in Treasury securities.  The rest of the federal debt is held by the public (foreign and domestic), including individuals, pension funds, banks, and other investors.

Of the three broad categories of federal spending, the only category that cannot be reduced by legislative action is net interest payments.  Net interest payments accounted for about 7% of federal spending between 1962 and the late 1970s. With the high interest rates in the late 1970s and the large budget deficits in the 1980s, net interest payments eventually rose to 15% of federal spending. The low interest rates combined with budget discipline in the 1990s reduced net interest payments back down to 7% of federal outlays by 2003. Low interest rates kept net interest payments low to 2009. However, net interest payments are projected to increase dramatically over the next 10 years.

Charts and Graphs
Below you will find several charts and graphs that show proposed spending based on the President's 2012 Budget, both mandatroy and discretionary; information about the federal deficit; and, data that shows the growth in defense spending against the growth of programs like Social Security, Medicare, Health care, Veterans Benefits, Education, and Income Security (unemployment, family assistance, etc.) as a percentage of our Gross Domestic Product.

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