Why Spending Is Increasing

In the decade leading up to the Great Recession, the government kept federal spending below 20% of GDP. It grew no faster than the economy, around 2% to 3% per year. During the recession, spending grew to a record 24.4% of GDP in FY 2009. This increase was due to economic stimulus and two overseas wars. At the same time, growth slowed, which reduced tax receipts. Congress worried about the ballooning U.S. debt. No one could agree on how to reduce it. As a result, Congress enacted across-the-board budget cuts, called “sequestration.” That finally reduced spending to 20.4% of GDP in FY 2015. Since then, spending has crept up again despite the sequester. Congress and the president rely on deficit spending to boost economic growth. But deficit spending is out of control. It rises each year, even when the economy is doing well.

Federal Spending Breakdown

Almost half of federal spending goes toward paying the benefits required by Social Security, Medicare, and Medicaid. These are part of mandatory spending, which are programs established by prior Acts of Congress. The interest payments on the national debt total $378 billion for FY 2021. They are necessary to maintain faith in the U.S. government. About $1.485 trillion in FY 2021 goes toward discretionary spending, which pays for all federal government agencies. The largest is the military.

Mandatory Spending

The mandatory budget will cost $2.966 trillion in FY 2021. Mandatory spending is skyrocketing, because more baby boomers are reaching retirement age. By 2030, one in five Americans will be older than 65.  The costs will outpace interest and income by 2034. At that time, Social Security benefits will begin draining the general fund. It also means that Congress can no longer “borrow” from the Social Security Trust Fund to pay for other federal programs. Medicare ($722 billion) and Medicaid ($448 billion) are the next largest expenses. Medicare taxes pay for $308 billion of the cost. The rest comes from premiums and the general fund. The following mandatory programs total $645 billion: 

Income support programs like food stamps, Unemployment Compensation, Child Nutrition, Child Tax Credits, Supplemental Security Income, and Student Loans. Unemployment insurance taxes pay for $43 billion of the cost. Contrary to popular opinion, welfare programs are not the biggest area of government spending. Retirement and disability programs for civil servants, the Coast Guard, and the military.

National Debt Interest Payments

In FY 2021, interest payments on the national debt are estimated at $378 billion. That’s enough to pay for U.S. Departments of Justice. It’s also one of the fastest-growing expenses.  By 2030, the cost will almost double to $665 billion, exceeding that of Medicaid. It’s not a mandatory program, but it must be paid in order to avoid a U.S. debt default. These estimates will increase if interest rates rise.

Discretionary Spending 

Discretionary spending is $1.485 trillion. It pays for everything else. Congress decides how much to appropriate for these programs each year. It’s the only government spending that Congress can cut. For FY 2021, the emergency fund is $74.3 billion. The largest component is Overseas Contingency Operations (OCO) that pay for wars. Once you include the OCO fund, then security-related spending is $915.1 billion. It’s spread out among different agencies and budget categories, so you must add it all together. It includes:

Defense Department base budget: $636.4 billion.DoD Overseas Contingency Operations: $69 billion.Various departments that support security: $209.7 billion. They include the Department of Veterans Affairs ($105 billion), the State Department ($20.5 billion), the Department of Homeland Security ($54.8 billion), the FBI ($9.7 billion), and the National Nuclear Security Administration ($19.7 billion).

The next largest non-military department, Health and Human Services ($88.5 billion) is just above one-tenth of total military spending. Its primary function is to spend mandated benefits for Medicare, Medicaid, and the Affordable Care Act. Other important federal government functions receive even less funding.