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. It includes everything that is not in the mandatory budget, which are programs required by law to provide certain benefits, such as Social Security and Medicare.
For FY 2014, Congress passed the Bipartisan Budget Act which approved $1.012 trillion for the discretionary budget. Here's the allocation to the major departments:
- Defense - $520.5 billion.
- Health and Human Services - $78.3 billion.
- Education - $71.2 billion.
- Veterans Administration - $63.2 billion.
- Homeland Security - $39.3 billion.
- Energy Department - $34 billion (includes $11.2 billion for the National Nuclear Security Administration).
- Housing and Urban Development - $33.1 billion.
- Justice Department - $27.4 billion (includes $8.3 billion for the FBI).
- State Department - $26.9 billion.
- Foreign Aid -$22.1 billion.
- NASA - $17.6 billion.
In addition, the Allocation Committee added $91.9 billion in Overseas Contingency Operations to pay for the Afghanistan War. This brings the total to $1.11 trillion.
How Does Congress' Budget Compare to the President's Budget?:
The Obama Administration cut discretionary spending in the FY 2014 budget to $1.242 trillion. The request for military spending was lowered to $618 billion. This includes the Defense Department's base budget, and its portion of the Overseas Contingency Operations for the War in Afghanistan. This breakdown does not include activities by other departments that support defense. It also does not include Veterans Affairs and Homeland Security. Therefore, the true cost of defense is closer to $745.2 billion.
The non-security budget request was increased to $624 billion. Here's the breakout for the major departments:
- Education, increased to $71.2 billion.
- Health and Human Services, increased to $78.3 billion. However, this includes Social Security Trust Funds to support administration of Medicare.
- Housing and Urban Development, reduced to $33.1 billion.
- The Justice Department, decreased to $16.3 billion.
Spending was cut to reduce the budget by $1.2 trillion. This was mandated by the Congressional deficit reduction committee to end the crisis over raising the debt ceiling that erupted in the summer of 2011.(Source: OMB, FY 2014 Budget, Table S-11)
How Did the Discretionary Budget Affect the U.S. Economy?:
Although stimulus spending has been blamed for increasing the budget deficit, in fact military spending has been the largest contributor to deficit spending. This deficit spending, which has been ongoing since 2002 thanks to the War on Terror, created more than a $17 trillion debt.
Now that the debt to GDP ratio is more than 100%, it may threaten economic growth over the long term. It puts downward pressure on the dollar's value, increasing the price of imports. It decreases the expectation that this debt will be paid, acting as a tax and hampering on economic growth. However, this hasn't happened yet because Europe and other developed markets are doing worse, making the U.S. economy and dollar look like a safer investment by comparison. Article updated January 17 ,2014
Understand the Current Federal Budget:
- Economic Report of the President
- Current Federal Budget Breakdown
- Revenue and Taxes
- Current Deficit