Where Does the Money Go?
The $2.4 trillion spent by the federal government in 2003 represents about 20 percent of our nation's gross domestic product, or the total monetary value of all goods and services produced in the United States during one year. To put it in perspective, federal spending in the United States exceeds the value of the gross domestic product of virtually every country on the planet save a handful, which is testament to the awesome size of the U.S. economy.
What does the federal government spend $2.4 trillion on? Every year in Washington, the biggest political fights are reserved for that very question: Who gets the money? For starters, federal spending is divided into two categories — mandatory spending and discretionary spending.
Mandatory Spending
As its name implies, mandatory spending includes those government expenditures that must be paid and do not require annual approval. Social Security, Medicare/Medicaid, and interest on the national debt are the three largest mandatory government payments. Social Security and Medicare/Medicaid are sometimes referred to as “entitlement” programs, because qualified recipients are entitled to receive benefits every year.
To put the dizzying growth of Social Security and Medicare/Medicaid spending in perspective, consider a few numbers. In 1970, $61 billion was spent on the three programs combined. In 1980, that number increased fourfold to $260 billion. It doubled to $560 billion in 1990, and doubled again to nearly a trillion dollars in 2000. It is estimated that the number will exceed $3 trillion in 2010 (more than the current federal budget), and will surpass $25 trillion in 2050.
As a percentage of the federal budget, mandatory payments have ballooned over the past four decades. In 1960, they accounted for approximately 30 percent of government expenditures. In 2003, they represented nearly 70 percent of the federal budget.
The Government Accounting Office (GAO) estimates that mandatory payment programs, if left unchanged, will constitute 90 percent of the entire federal budget by the year 2025. Today, there is mounting political pressure on lawmakers to find alternative ways of funding future entitlement programs without bankrupting the government.
Discretionary Spending
Discretionary spending is everything that is not mandatory spending. Or, put another way, it is funding that Congress and the president have control over on an annual basis. During the budget process, funding levels for discretionary spending can be raised, lowered, or even eliminated completely. Unlike mandatory spending, discretionary spending must be appropriated every year. If it isn't, the money isn't allocated.
The largest discretionary spending item is national defense, which accounted for half of all nonmandatory spending in 2003. Following the end of the cold war in the early 1990s, defense spending actually decreased substantially (in both real dollars and as a percentage of discretionary spending) for nearly a decade. That trend changed, however, following the September 11 terrorist attacks. Defense spending is now at an all-time high, and is likely to continue to grow for the foreseeable future.
The newly created Department of Homeland Security is another rapidly growing discretionary spending item. The tab for homeland security topped $250 billion in 2003, making it second only to defense spending ($400 billion) for that year. At this point, it's uncertain how rapidly homeland security spending will grow in the future. No other discretionary spending item exceeded $70 billion in 2003.
After the departments of Defense and Homeland Security, spending for the Department of Agriculture comes in third ($65 billion in 2003), followed by Transportation, Veterans Affairs, Labor, Education, Housing and Urban Development, Energy, Justice, NASA, Interior, the State Department, and Commerce.
