Why does spending matter?
Spending across all levels of government now totals a whopping 40% of our gross domestic product. If it had merely kept pace with population growth and inflation during the last 50 years, spending would total less than 25% of what it is today.
Unfortunately, little change is emanating from Washington. Rather than coming together to reduce spending, politicians from both parties shake hands under an implicit agreement of, “I’ll vote for your spending if you vote for mine.”
Spending is key to policy debates because it enables every decision government makes — good and bad. With interest on the debt alone set to quadruple over the next decade, economic reports consistently warn of both an eventual fiscal crisis and upcoming insolvency of major programs.
What is the difference between mandatory and discretionary spending?
Mandatory spending is spending required by statutory criteria: it is not authorized annually. Examples of mandatory spending include Social Security, Medicare, and Medicaid.
Discretionary spending is spending that must be authorized annually and appropriated by the House and Senate. Examples of discretionary spending include Defense, Education, and Transportation allocation.
What spending makes up the biggest parts of the budget?
The largest parts of the budget are made up by mandatory spending. Mandatory spending makes up about 63% of the entire federal budget. Discretionary spending makes up another 29% of the budget, split roughly evenly between Pentagon spending and so-called “non-defense discretionary.” The remaining 6% of the budget is interest payments on the debt.
What about “pork” spending?
“Pork” is often used to describe particularly egregious examples of wasteful spending. All forms of waste, fraud, and abuse are important to tackle, but it’s also worth remembering that, wasteful as it may be, pork spending typically accounts for a small portion of the federal budget and is a minor cause of budgetary deficits.
Should we care about the national debt in addition to spending?
Absolutely. Even if every bit of spending is perfectly justified, it’s still important to consider whether a country can afford public sector programs. Likewise, even if programs are sustainable, goods or services might be better provided by the private businesses or organizations.
Borrowing to pay for programs increases their cost because of interest, and there’s further evidence that accruing a large national debt hampers also hampers income and job growth. While some argue that borrowing costs are minor with interest rates below historical averages, interest rates are projected to rise in the future. Larger interest payments could squeeze other programs out of the budget, or necessitate higher taxes to sustain status quo levels of spending.
Is there a distinction between the national debt and the public debt?
Yes. The national debt is how much a government owes to its lenders that are not affiliated with the federal government. It includes all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government.
The public debt often gets confused with the national debt but the national debt refers specifically to debt held by government agencies versus external investors.
Can’t we just raise taxes to pay down the debt?
While it may be possible to raise taxes to pay for new programs, it’s impossible to do so in order to pay off our already existing debt. Current levels of spending are just too high for tax increases alone to address already existing budget shortfalls.