U.S. Budget Spending:
For FY 2010, budget spending is estimated at $3.55 trillion. Over half of the budget (56.6%) must go towards Mandatory programs, such as Social Security, Medicare and Military Retirement programs. These expenditures are mandated by law, and cannot be changed. Nearly 40% of spending goes towards Discretionary programs. This is negotiated between the President and Congress each year. Nearly half of the Discretionary budget is Military allocations. The remaining 4.6% of spending goes towards interest payments on the national debt. (Source: OMB,Summary Table 2)
Spending Is Growing Faster Than 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). However, spending to lift the economy out of recession has increased this ration to 24.1% of GDP. That's because GDP is projected to remain flat in 2009, and only grow 3.4% in 2010. Spending will fall to 22% of GDP by 2012. Increased fiscal spending is needed to stimulate consumer spending, since over 70% of what the U.S. produces is for personal consumption.
Mandatory Spending Is the Largest Portion of the Budget:
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:
- Military, which is nearly 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:
Just under 5% of the budget is for interest payments for the national debt. Although the debt increases each year, the percent of the budget allocated is forecast 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 reaching retirement age. The two major Senior programs, Social Security and Medicare, went from 28% of the budget in 1988 to 34% of the budget in 2008. In the 2010 budget, it is only 32% since spending to end the recession has inflated total spending. By 2019, the OMB projects that these two programs will rise to 39% of total spending.
Other Mandatory programs, such as Medicaid, Food Stamps and Unemployment Compensation, are projected to remain stable at 20% of the budget from 2008-2012.
Discretionary Spending Will Increase in 2009 and 2010 :
Discretionary spending has increased 37.5% of the budget in 2008 to 38.5% in 2010. This reflects an increase from Stimulus spending. Non-Defense spending went from 17.7% of total spending in 2008 to 19.6% in 2010. Defense remained at 20% during this time.
Eventually, Discretionary Spending Must Decline:
If Mandatory programs increase, then Discretionary programs must decline. Discretionary spending is forecast to decline to 34.3% of spending by 2012 to allow the Senior programs to increase.
This makes sense since many of those receiving other programs, like Medicaid, will transition over to Social Security programs as they reach become eligible at age 65.The largest concern has been that the expenditures forecast for Social Security may not have the income to support them as Baby Boomers retire from the workforce. However, most people have seen their prospects for retirement decline.
