What Is Discretionary Spending?: Discretionary spending is that part of the U.S. Federal Budget that is negotiated between the President and Congress each year as part of the Budget Process. The other portions are mandated by law to provide certain benefits, such as Social Security and Medicare.
(See U.S. Federal Budget - Mandatory Spending.)
The total Discretionary spending in FY 2006 was $1.017 trillion, which is 38% of total Federal budget spending. Of this, over half is what OMB calls Security-related spending. This is spending for the Department of Defense, Homeland Security and the War on Terror.
The rest is non-security spending. The largest departments are Health and Human Services, Education, Veterans Administration and the State Department. These four agencies spend over half of the non-Security budget.
What Does the FY 2008 Budget Propose for Discretionary Spending?: The FY 2008 Federal Budget proposes a decline in discretionary spending over the 5 year outlook, from $1.114 trillion in FY 2008 to $1.1039 trillion in FY 2012. The decline doesn’t occur until after FY 2009, thanks to an increase in security-related spending in FY 2008.
On the other hand, the non-security portion of the discretionary budget starts declining immediately, from $456 billion in FY 2008 to $435 billion in FY 2012. In fact, this level will be lower than FY 2006 actuals, despite a projected increase in inflation of about 2% per year.
How Will the FY 2008 Budget on Discretionary Spending Affect the U.S. Economy?: Decreased funding for non-defense related government programs means decreased benefits for program beneficiaries. Direct impacts on the U.S. economy are difficult to measure, which is one of the reasons these programs are being cut. Many of these programs were created as part of the New Deal to provide a safety net for those who had been demolished by the Great Depression of 1929.
However, this funding is being shifted to pay for mandated Social Security and Medicare programs, thanks to the aging population.
Government funding will still be at roughly the same level, so liquidity to the economy will remain stable. The overall economic impact will be negligible.
Instead, the impact will be felt in pockets of the population whose funding is being cut, but who are not yet 62. Cuts will also be felt in special interest portions of the population, such as those served by NASA, the Science Foundation and the EPA. Some may argue that the quality of life could decline, but these impacts can not be measured in terms of a direct impact on the economy.
