U.S. Budget Spending:
For FY 2008, budget spending is estimated at $2.9 trillion. Over half of the budget must go towards Mandatory programs, such as Social Security, Medicare and Military Retirement programs. These expenditures are mandated by law, and cannot be changed. Around 40% of spending goes towards Discretionary programs, which the President and Congress negotiate the amount each year. Half of the Discretionary budget is Military allocations. The remaining 10% of spending goes towards interest payments on the national debt.The Budget Grows With the U.S. Economy:
The Executive Office of Management and Budget (OMB) keeps the budget at about 20% of GDP each year. This means that the total budget should only grow as fast as the economy does, which is about 3% per year (adjusted for inflation). If taxes are higher than this level, then it will actually slow growth, since there will be less money in consumers's pockets to buy things. Consumer spending is the primary driver of the economy, since over 70% of what the U.S. produces is for personal consumption.Mandatory Spending Is the Largest Portion of the Budget:
Just over half of the budget is Mandatory Spending. This is for spending that is mandated by other programs outside of the Budget Office, including- Senior programs, such as Social Security and Medicare.
- Income support programs such as Medicaid, Food Stamps, Unemployment Compensation, Child Nutrition, Child Tax Credits, Supplemental Security for the blind and disabled, and Student Loans.
- Other Retirement and Disability programs for Civil Servants, the Coast Guard and the Military.
Discretionary Spending Is Negotiated by Congress and the President:
Nearly 40% of the budget is Discretionary. This is what is governed by the appropriations that are passed each year. It includes:- Security, which is half of Discretionary.
- International, which is about 5%, and includes the diplomatic offices and foreign aid.
- Other Discretionary, which includes all other domestic programs.
Interest Payments on the National Debt:
About 10% of the budget is for interest payments for the national debt. Although the debt increases each year, the percent of the budget allocated is forecasted to remain the same.The Percent Allocated to Social Security is Increasing:
The amount for Mandatory programs is increasing thanks to the huge number of Baby Boomers who will be retiring. The two major Senior programs, Social Security and Medicare, went from 28% of the budget in 1988 to 35% of the budget in 2006. The CBO projects that these two programs alone will comprise 40% of total spending by 2012.Other Mandatory programs, such as Medicaid, Food Stamps and Unemployment Compensation, are projected to remain stable at 15% of the budget from 2006-2012.
The Percent Allocated to Discretionary Programs Must Decline:
If Mandatory programs increase, then Discretionary programs must decline. In fact, Defense has already declined from 27% of the budget in 1988 to 20% in 2006. All Discretionary programs are forecast to decline 1-2% between 2006 and 2012 to allow the Senior programs to increase.And, in fact, this may make sense because many of those now receiving other programs will transition over to Social Security programs as they reach 65 and become eligible.
The largest concern is that the expenditures forecast for Social Security may not have the income to support them as Baby Boomers retire from the workforce. Whether they will, in fact, retire is a subject that is open to debate.