For fiscal year 2014, the U.S. government plans to spend $3.778 trillion. More than 60%, or $2.3 trillion, goes toward Mandatory spending like Social Security, Medicare and Military Retirement programs. These expenditures are estimates of how much it will cost to fulfill programs established by Congress. This includes the $223 billion that will be spent on interest payments on the $17 trillion national debt.
The rest, called Discretionary spending, is negotiated between the President and Congress each year. The President's budget proposes that $1.242 trillion be appropriated to run the rest of the Federal government. About half, ($618 billion) is military spending. (Source: Office of Management and Budget, FY 2014 Budget, Table S-5)
Government Spending Is Outpacing Economic Growth:
Before the recession, the Executive Office of Management and Budget (OMB) kept Federal spending below 20% of GDP each year. This meant spending only grew as fast as the economy, which was about 3% per year.
Ever since the recession, however, spending has been at a higher level. It reached a peak of 24.3% of GDP in FY 2012. In FY 2014, spending is budgeted at 22.4% of GDP, just slightly lower. As the economy improves, the OMB forecasts that spending will drop to 21.2% of GDP by FY 2018.
There are four reasons for increased spending:
- Stimulus spending to lift the economy out of recession.
- Defense spending for the Wars in Afghanistan and Iraq.
- Changing demographics, which increases Social Security spending.
- More people living in poverty, increasing spending on Medicare and other programs.
Mandatory Spending Is the Largest Portion:
Mandatory spending is required by Federal law enacted by Congress. It includes
- Senior programs, such as Social Security ($860 billion) and Medicare ($524 billion).
- Income support programs such as Medicaid ($304 billion), 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.
- It also included the TARP program, job creation initiatives, and a credit from health care reform starting in FY 2011.
The Percent Allocated to Social Security is Increasing:
The amount for Mandatory programs is increasing thanks to the huge number of Baby Boomers who are reaching retirement age. The two major Senior programs, Social Security and Medicare, went from 28% of the budget in FY 1988 to 37% of the budget in FY 2014. By FY 2023, the OMB projects that these two programs alone will rise to 40% of total spending.
Interest Payments on the National Debt:
One of the fastest growing sections of the Mandatory budget is interest payments on the national debt. In FY 2014, it was just 6.5% of total spending, but that's $223 billion -- enough to pay for ten Justice Departments. By 2023, it will quadruple to $763 billion, making it the second largest budget item, after Social Security ($1.424 trillion) and Medicare ($867 billion). (Source: OMB FY 2014 budget, Table S-5)
Discretionary Spending Is Negotiated by Congress and the President:
Just 39% of total spending is Discretionary, which is governed by the appropriations that are passed each year. Military spending, at $618 billion, is just about equal to all other departments combined ($624 billion). Here's a breakdown of the largest non-Defense department budgets: Health and Human Services ($78.3 billion), the Department of Education ($71.2 billion), Housing and Urban Development ($33.1 billion), and the Department of Justice ($16.3 billion). (Article updated April 18, 2013)
Understand the Current Federal Budget:
- Economic Report of the President
- Current Federal Budget Breakdown
- Revenue and Taxes
- Current Deficit
- Who's Who in the Budget Process
- What Is a Budget Deficit?
- How Does Fiscal Policy Work?
- What's the Difference the Deficit and the Debt?