The overarching issue in the Taxes & Spending section of the Interlock is the matter of government debt, i.e. government spending too much compared to tax revenue. While important (see the post on the debt), this is an issue that results from both spending and tax policy; to solve it, you have to address both. However, for the moment we’re just going to be looking at the spending half of the equation – taxes will be addressed later.
To begin, we need to look at the numbers involved. Too many Americans are completely ignorant of the scale of the spending on various programs, and this is distorting the policy debates in Washington and across the country. Before we can talk about what we should be spending, it’s critical to have at least an outline of what we are spending.
All levels of government in the US, local, state, and federal, officially spent a total of $6.1 trillion in 2013. (There was well over $1.2 trillion of unofficial spending via the tax code, as well, but that’s a subject for another post). I’ve broken it down here:
(The data here is from http://www.usgovernmentspending.com/. As with all interpretations of raw data, these charts may be incorrect in some particulars; if you spot any such inconsistencies, please let us know!)
The biggest budget item is, unsurprisingly, welfare. Social Security cost $813.6 billion in 2013; Medicare and Medicaid $497.8 and $433.3 billion, respectively; the rest of the welfare programs add another $554.4 billion. Add in $371.5 billion for the pensions of government employees, which replace or amplify Social Security, and the total was $2.67 trillion in 2013, about 44% of total government spending.
(Social Security, Medicare, and government pensions are expected to grow over the coming decades, as the Baby Boom generation retires and starts to need more and more healthcare. Poverty-linked welfare has ballooned in recent years, but is more likely to be throttled in future budget-control measures than pensions – the poor don’t have as much political heft as the elderly do.)
The second-largest budget item, at $952 billion, is education, arguably the most important investment in the future that we can make. The problem we’re facing here is that we are noticeably underperforming in education and could arguably be spending more than this. Much of this spending (~$650 billion) is from local governments; this is the best level of government to be administering pre-primary through secondary education, but it makes reforming the education sector difficult, since local governments have widely varying tax bases, are always under financial stress, and are easily swayed by vested interests.
Military spending ($633 billion), veterans benefits ($139 billion), and diplomacy & foreign aid ($46.5 billion) make up our foreign policy budget, totaling $818.7 billion, the third biggest item on the list. As many have pointed out, the US military budget is higher than those of the next 8 countries combined. This is not necessarily a bad thing, since being the world’s military superpower has its benefits, but the amount of waste and inefficiency involved in that budget is something we need to address.
After the big three of welfare, education, and foreign policy are ticked off, we have a variety of critical functions that come in at less than $300 billion each – the criminal justice system and the courts, transportation infrastructure and services, public health and hospitals, and various other kinds of infrastructure and utilities. Each is critical to social stability and economic growth. Like education, we could probably use more spending on these categories, not less, but with welfare promises and defense spending taking up so much of the budget already, where do you find the extra cash?
The second-to-last wedge in that pie chart is all of the other things that governments in the US spend on, including sports & recreation ($39.7 billion), fire departments ($42.7 billion), agriculture/forestry/fishery ($40 billion), the general running costs of government, etc. Check out a full table here.
The final wedge is the interest paid on the government debt, at $332.7 billion. (In this particular calculation, that number was reached by combining local, state, and federal interest payments, and then subtracting interest earned by the government’s own investments, so technically the government is paying more than that in interest.) This will continue to increase over time as long as we continue to run budget deficits.
For most US policy debates on the subject, though, it’s the federal government’s budget that is most important. After all, it’s federal policy that has created most of the national debt, and federal programs that are responsible for over half of total government spending.
Most importantly for the Interlock, though, it’s federal spending decisions that affect all of the constituencies in the US – local and state governments are responsible for some very important programs, but they make decisions about them within a framework created by the national government. Thus, while it’s important to look closely at the factors that impact state or local spending when discussing, say, Education, there’s just too much variation between individual government’s policies to properly delve into them all, at least not here. The Federal government, on the other hand, has a huge impact throughout the country, and its spending decisions are critically important to everyone.
The federal government spent $3.45 trillion in 2012, 57% of the total $6.1 trillion spent by all levels of government that year. (Again, that’s according to official spending budgets; there’s another trillion or so in spending that’s “off the books” and not included.)
Again, welfare payments made up a lot of it – in this case, more than half of the federal budget, totaling $2.17 trillion out of $3.45 trillion. $131.7 billion went to government employee pensions, $813.6 billion to Social Security payments, $497.8 billion to Medicare, $321.8 billion to Medicaid, and $404.8 billion to the various other federal welfare programs.
Out of the rest of the budget, foreign policy (in which I include military spending and veterans benefits, as well as diplomacy & foreign aid) makes up the largest chunk, accounting for $818.7 billion in total. Education, law enforcement, infrastructure, and all of the other, minor but important functions of government made up $326.7 billion, in total, and interest on the national debt finishes the list at $220.9 billion.
A sense of scale is important, when you talk about government spending and deficits. Many ideas have been suggested for saving money, but if we stay within the realm of political possibility, no single source of spending cuts is big enough to eliminate the deficit. For example, there’s a persistent belief in the US that we’re spending massive amounts on foreign aid – but foreign aid was only $37 billion in 2013. Even if we cut it completely, which would probably be a bad idea, it wouldn’t make much of a dent in the almost $680 billion deficit that year.
Similarly, completely eliminating SNAP (aka the federal food stamp program) would save the federal government about $80 billion a year… which wouldn’t be sufficient to eliminate the deficit, and would leave many poor families dangerously short of food. Cut the defense budget in half, eliminating $400 billion in spending? Besides the massive drop in military capacity, you still wouldn’t quite get rid of the deficit. Completely stop paying federal government employees their paychecks? You’d save less than $100 billion. Not enough.
What about all of the people defrauding the government? After all, targeting fraud is a much more politically popular idea than cutting budgets. The government loses hundreds of billions of dollars to fraud every year. But even if we manage to cut a hundred billion in fraud costs, it would only account for a 3% drop in total federal spending, and only reduce the budget deficit by around 15%. This would be an absolutely worthwhile goal, if you could persuade Congress and the various government agencies to vigorously and effectively pursue it, but it still wouldn’t be enough on its own.
In short, there is no one single thing in the official budget that can be cut to solve the problem of the debt. Indeed, there are many places where we should be spending more, like on infrastructure or education. Any cutting of spending has to be done on a broad basis, with small cuts to many (dearly beloved) programs, with an intense focus on what is necessary for the government to be funding, rather than what special interests want the government to fund.
The next post will be on tax expenditures, or the more than $1.2 trillion in spending that you don’t see when you look at the official budget.