Republicans Block FY 2011 Budget:
The President submitted the FY 2011 budget to Congress in February 2010. If it had followed the normal budget process, the House and Senate would have debated the budget all year, and routinely passed it by the September 30 deadline to keep the government running smoothly.
However, 2010 was a bitterly contested mid-term election. Tea party Republicans adopted the Federal budget deficit and debt as their cause, since the debt level was nearing 100% of GDP. Democrats and moderate Republicans who faced strong competition from them were afraid they would lose their seats if they approved the budget.
To address Republican budget concerns, the President appointed the Simpson-Bowles Commisssion in February 2010. Its goal was to lower the annual Federal budget deficit to 3% of Gross Domestic Product (GDP), balance the budget by 2015, and reduce the long-term Social Security and Medicare deficit. The Commission released its report in December. It recommended measures to cut $4 trillion from the deficit by 2020, reduce the deficit to 2.3% of GDP by 2015, and reduce the debt-to-GDP ratio to 60% by 2023. However, it recommended tax increases that Republicans couldn't support, and spending cuts that Democrats couldn't support. Therefore, the Commission's recommendations fizzled.
Meanwhile, instead of passing the budget by its October 1 deadline, they passed a Continuing Resolution to fund the government at current levels until April 2011.
Despite 3% economic growth, and a reduction in unemployment from its height of 10.2%, voters expressed their dissatisfaction with the economy by electing a Republican majority in the House of Representatives. Republicans gained 60 House seats, with Tea Party candidates accounting for 28 of them.
The budget debate raged on, and a series of stop-gap funding bills in March and April 2011 were approved to keep government services going. As part of the March budget debate, the Republican members of Congress proposed $61 billion in budget cuts. These cuts were from the Discretionary budget, and included reducing funds for child nutrition, programs to help pay for college tuition, and funding to improve food safety. Research from the Economic Policy Institute said the cuts would have cost 800,000 jobs.
FY 2011 Budget Approved:
Finally, on April 14 2011, Congress approved a budget with $38 billion in cuts. There was $20 billion cut from discretionary programs, targeting health, labor and education. The remaining $17.8 billion was cut from Mandatory programs. However, a study by the Congressional Budget Office found that actual spending would only be reduced by $352 million. That's because of Defense Department increases, and the fact that many of the proposed cuts were in programs that probably wouldn't have used all their budget anyway.
What Was Actually Spent in FY 2011
The actual revenue, spending and deficit for FY 2011 are reported in subsequent budgets. Here's a summary of what actually happened.
For Fiscal Year 2011, the U.S. Federal government received $2.6 trillion in revenue. Income taxes contributed 45%, social security taxes were 34%, corporate taxes were only 12%, and the remaining 9% was to come from excise taxes. Unfortunately, revenue only came in at $2.303 trillion. (Source: U.S. Office of Management and Budget, FY 2013 Budget Table S-5)
Spending was $3.8 trillion. Over half went towards Mandatory programs, such as Social Security, Medicare and Military Retirement programs. These expenditures were mandated by law, and cannot be changed without an act from Congress. As it turned out, spending was only $3.603 trillion.
Mandatory - Mandatory spending was budgeted at $2.2 trillion, or 56% of the U.S. Federal budget. Only $2.073 trillion was spent, including: Social Security ($725 billion), and Medicare ($480 billion), Medicaid ($275 billion). Proposals enacted under the Economic Stimulus Act actually added $38 billion to the budget, as banks repaid TARP funds.
The remainder, $631 billion was spent on all other mandatory programs, which includes Food Stamps, Unemployment Compensation, Child Nutrition and Tax Credits, Supplemental Security for the Disabled and Student Loans. (Source: U.S. Office of Management and Budget, FY 2013 Budget Summary Table S-5)
Discretionary - Around 40% of spending, or $1.3 trillion, went toward Discretionary programs which the President and Congress usually negotiate each year. Half of the Discretionary budget, or $838 billion, went toward military spending. Non-security spending was $462 billion. The largest departments were: Health and Human Services ($78.5 billion), Education ($68.3 billion), Housing and Urban Development ($37.1 billion), Justice ($26.9 billion) and Agriculture ($21.5 billion). (Source: OMB, FY 2013, Summary Tables Table S-12)
Military - Total security spending requested for FY 2011 was $895 billion, although only $838 billion was spent. This was less than the $850 billion in the FY 2010 military budget, but more than the $782 billion for FY 2009.
Security spending is in layers. First is the Department of Defense Base Budget, which was $528.3 billion, slightly less than the $530.1 billion spent in FY 2010. The budget reduced waste by 17% by ending or curbing several programs, including the C-17 aircraft and Joint Strike Fighter Alternate Engine programs.Benefits for 9 million retired military personnel and veterans with disabilities were expanded. It allowed for improved care for wounded service members, especially those with mental health needs. Traumatic head injuries had become much more widespread, as improved field medical procedures allowed doctors to save many soldiers who had died from head wounds in previous wars.
Second is $159.4 billion in contingency funds to support initiatives in Afghanistan, Pakistan and Iraq.
Third is programs in other departments that support U.S. security. These include Homeland Security, the Veterans Affairs and the State Department. (Source: Source: OMB, FY 2012 Budget, Table S-3 "Actual FY 2010 Spending")
The worst effect of the FY 2011 budget was its $1.299 trillion deficit. This followed a $1.294 trillion deficit in FY 2010, and a $1.413 trillion deficit in FY 2009. To see all budget deficits, go to Federal Budget Deficits.
Deficit spending stimulated the economy, which was still needed in FY 2011. It was critical after a recession, when businesses were operating below capacity, and needed new customers. Deficit spending should focus on stimulating consumer spending and creating jobs.
However, deficit spending has been ongoing since 2002. The deficits during and after the recession helped to create a (at that time) $15 trillion debt. As it continues, deficit spending puts downward pressure on the dollar's value. A lower dollar raises the cost of exports, and that can increase the likelihood of inflation.
As the debt to GDP ratio approached 100%, investors became concerned that the U.S. might default. Or, they expected the U.S. to raise taxes in the future to get the revenue needed to pay down its debt. This anticipation of taxes in the future can drag down economic growth today.
In addition, interest payments to finance the debt add to each year's deficit. In FY 2011, interest payments were $230 billion. Article updated October 23, 2013
Compare to Other U.S. Federal Budgets