Everything You Need To Know About Federal Spending In Five Charts

Authored by Dan Mitchell via DanielJMitchell.com,

I write constantly (some would say incessantly and annoyingly) about entitlement spending. And I occasionally write about discretionary spending.

It’s time to address the budget in a comprehensive fashion. Let’s look at five charts to put everything in context and to show how we got into our current mess.

Our first chart (based on Table 8.2 from the Office of Management and Budget’s Historical Tables) shows what has happened to major spending categories from 1962 to 2017. And all the data is in inflation-adjusted dollars (2009 benchmark) to accurately gauge how and why the burden of federal spending has grown.

This next chart shows the actual percentage increases in the major spending categories during this time period. The two big takeaways are that 1) the defense budget is not the cause of our long-run fiscal problems (though that doesn’t mean it should be exempt from cuts), and 2) entitlement expenditures have exploded.

And if you look at the data I shared from the Congressional Budget Office’s long-run forecast, you would see that these same trends will prevail for the next three decades.

In other words, our fiscal problems start with entitlements and end with entitlements.

If you want to look at the problem with a broader lens, this next chart shows that the problem is domestic spending (i.e., the combination of entitlement and domestic discretionary outlays).

If you’re pressed for time, you can stop reading now. You have the key information already.

But if you want to get a bit wonky, here are two other charts that help explain the intricacies of how budgets work (or don’t work!) in Washington.

The first thing to realize is that there are two budget processes in Washington.

There are entitlement programs, which basically operate on autopilot. For all intents and purposes, the President and Congress could go on vacation for the next three years and programs such as Social Security, Medicare, Medicaid, and Obamacare would mechanically continue.

But there is also “discretionary” spending for the Pentagon and various domestic programs, all of which is determined through an annual “appropriations” process. Whenever you read about a government shutdown, it’s because politicians can’t agree on the level of funding for the discretionary part of the budget.

Now let’s get to my favorite part, which is figuring out how to limit the size of the federal leviathan.

This last chart shows that net interest spending is genuinely untouchable (unless one wants a Greek-style or Argentine-style default). The rest of the budget, however, can be addressed. Entitlements can be changed through “reconciliation”, which is a legislative process designed to minimize procedural roadblocks (in general, tax bills also use reconciliation legislation). And discretionary programs can be changed via annual appropriations legislation.

I should add that net interest may not be directly touchable, but interest payments can be reduced by controlling spending and thus reducing red ink.

Another thing to understand is that the budget caps (yes, the ones that were weakened in 2013, 2015, and earlier this year) only apply to discretionary spending.

And the most important thing to realize is that the only solution to our budget mess is genuine entitlement reform. Which is why we need constitutional (and comprehensive) limits on total outlays. Politicians will only do what’s right if every other option is off the table.


Southern_Boy Thu, 03/01/2018 - 21:08 Permalink

We are well on our way to becoming another Greece or worse yet, another Venezuela.

They first need to disarm the non-elitist populace before they can control like Venezuela.

I am waiting to see when the first "forbidden zone" for Sharia Law is implemented in the US.  

You can see it here in the "New Modern Liberal South" where growing enclaves of extreme liberalism (Charlottesville, Chapel Hill, Charlotte, Atlanta) and steady influx of large numbers of liberal refugees from the high-tax liberal states are already pushing the tax rates, housing costs sky high like in the North East and they are now always discussing the new social programs for government to grow and grab more from the people.

They call the people outside of the enclaves "ignorant" while pushing LGBTQ agendas, gorging themselves on federal and state budget busting educational borrowing, social programs and growing the "new elite liberal arts colleges". 



W.M. Worry Thu, 03/01/2018 - 21:09 Permalink

You can't have a serious discussion with bullshit numbers like these. Military/Security spending is more than double what is indicated on your lame ass graph. 

Kickaha W.M. Worry Thu, 03/01/2018 - 21:26 Permalink

I suppose it's open to some debate, but Social Security and Medicare are self-funded and shouldn't be included in this chart.  Sure, the gov stole all the Soc. Sec. money and replaced it with IOU's., but that doesn't make in an budget expense.  They are liabilities.  The interest payments on the IOU's are proper expenditures, but the inclusion of SS and Medicare in the graphs does nothing other than intentionally distort the proportion of the federal budget supposedly going to entitlements.

And yes, with all the proxy wars having been placed off-budget, defense expenditures are grossly understated.

In reply to by W.M. Worry

Pernicious Gol… Kickaha Thu, 03/01/2018 - 23:54 Permalink

You need to stop living in fantasy land. You sound like an angry husband who bought a virgin bride, found out she isn't a virgin, and expect somebody to make her a virgin again.

SS and Medicare were vote-buying Ponzi scams from the start. This was completely obvious to anybody who could add and multiply. Deluded people who relied on government SS and MC promises are equally dishonest and complicit in the scam. These programs take in vastly less than is needed to fund their benefits, and pay out vastly more than is fiscally reasonable. Both payroll deductions are taxes, not premiums and not contributions. Congress just spends them, then tries to avoid paying out what was promised.

In reply to by Kickaha

Falcon49 Pernicious Gol… Fri, 03/02/2018 - 04:58 Permalink

It might have been...a vote-buying ponzi scam but, the people the bulk of the people recieving it today were not old enough to vote when it was passed and have been paying into it their entire working lives.  I would say that it had more to do with creating a population dependent on it... like most gov programs and with that dependency; control and manipulation.  Even if you are using medicare (which you are forced to use)...you are still pay a montly or quaterly charge (just like an insurance company would charge).  Most medical insurance today require that once you reach 65 that you use medicare first and they will cover what medicare does not.  For SS, people were forced into paying into it and it was spent....now you have a huge senior population that are depending on it to survive in retirement.  But, not to worry....the system is designed to ensure that the majority of the population will have all their assests expended or confiscated before the die.  Thus insuring nothing is passed on to the next generation in order ensure their dependency.  

In reply to by Pernicious Gol…

Mini-Me Thu, 03/01/2018 - 21:24 Permalink

Want to limit federal spending?  End the Fed. 

Once debt monetization ends, interest rates will rise as lenders realize they are risking their savings on an insolvent government.  Uncle Sam gets his house in order or we default.  It's really that simple.

GooseShtepping Moron Thu, 03/01/2018 - 21:33 Permalink

I posted this last night but I don't think anybody saw it, so I'm going to try it one more time.

Once the selling begins in earnest, so much notional value is going to get wiped off the books that inflation won't be possible anyway. If we really wanted to initiate inflation (and I would argue that a steady but robust rate of inflation is probably the least bad option we have for dealing with the debt colossus), we should have rebated money directly to private individuals, i.e. actual helicopter drops. That might have done the trick. There is a way we could do this while both stimulating employment and protecting the value of savings. My plan would go as follows:

1) We effectively raise wages, not by mandating a wage increase that employers have to bear out of pocket, but through a generous reverse income tax. If the government were to stop all welfare programs but agree to match 25% of payrolls, it would not only greatly incentivize job seeking, but would also motivate employers to raise wages on their own, as labor would be bidding for the highest available wages so as to maximize the multiplier effect (for the same reason you want to knock down as many pins as possible after bowling a strike).

2) Since this would generate significant consumer inflation, we could protect the value of people's savings by opening a second stimulus window. Each month the government could write a second check to individuals based on the prorated balance of their savings accounts so as to keep them at constant value with respect to the measured rate of inflation, doing the job that high interest rates used to do in the past. This would not only act as a check to keep inflation from going too far too fast, but would also motivate people to save.

The big losers in this scheme would be creditors and Wall Street. The bourses of the world would practically dry up as "capital" would have to offer an enormous rate of return to attract any significant investment, while all debts public and private would be rapidly monetized and paid off with highly inflated dollars. The reserve status of the dollar would come to an end and the global financial system would cease to exist, but private citizens and labor would make incredible relative gains and enhance their status within society.

This is a highly populist move and is the most benign, least painful way of actually getting rid of the debt. Once a matter-of-fact Caesar politician proposes it, it will be the beginning of the end for the banks and their control over the powers of the earth.

President's analyst Thu, 03/01/2018 - 21:37 Permalink

WELFARE is the new Career path for many in America.Why work when I can support your worthless EBT,SECTION 8 ass?

Why not? Shit they only take 33% now why do I need all MY money right? I can send my kids to community collage so illegals can go to Yale..

I'm sure as a straight white male I deserve this in America. So I'm  gonna go on welfare and piss away my life too...Hey MOM is the basement empty it's scary out here. "OH" wait that's right I have ,honor and a WORK ETHIC. Never mind time to make the donuts..

red1chief Thu, 03/01/2018 - 22:06 Permalink

There's lots of Empire stuff in "Other" and "Domestic Discretionary". The idea that " the defense budget is not the cause of our long-run fiscal problems" is BS. Probably another neocon trick to chop social security and medicare, then shift the welath to the military-industrial complex. The author touches lightly on pentagon money in the discretionary budget, but I'd bet most who are not looking would miss it.

Kefeer Thu, 03/01/2018 - 22:08 Permalink

It is not entitlement reform; it is Military, Banking, Industrial, Political, NGO & moral reform that is needed.  More than all those; we need the fixed moral compass that is published in that ancient text that served the nation very well.

Ron_Mexico Thu, 03/01/2018 - 22:15 Permalink

The biggest problem we have in fixing this is the mistaken belief that we can't  This so called mandatory entitlement spending was passed by Congress an it can be made "unmandatory" by Congress.  When TSHTF, as it inevitably will, somebody is going to make a national political career by leading the charge to do away with a lot of this BS.

Pernicious Gol… Thu, 03/01/2018 - 23:50 Permalink

It's not "non-discretionary, entitlement, mandatory" spending. It's really welfare spending. Congress could vote to cut it tomorrow. Calling it "mandatory" is intellectual and emotional warfare. 60% of the budget is welfare.

rtb61 Fri, 03/02/2018 - 01:25 Permalink

Unfunded tax cuts will screw up your economy, that's straight up fact. Cutting social welfare increases crime, of course paying the cost of crime is also apparently a social welfare cost. Nor for what sane reason, would not expect the greatest cost of government to be social welfare, anything else is straight up psychopathic thinking.

Universal health care will reduce you medical spend by 30% suck it up, it is reality. It also drives preventative health care which will further increase savings.

Also cite independent sources not partisan party government sources, it makes the numbers all super rubbery and questionable, in fact budget numbers end up looking exactly Gerrymandering and the devil is in the detail ie ex-soldier health services after playing total global dominance games all over the planet, military cost or social welfare cost.

Also how many social welfare services are now contracted out, with unlimited profit margins or no bid contracts, how much of that social welfare spend is profits going to corporate contractors with privatised services and those profit margins can be huge, how much of that increase reflects the change from government provided services to corrupted privatised contractor provided services.

Corruption is crippling the US, you even have US special forces murdering each other on active duty, as part of fraudulent schemes to steal as much as they can, why not superiors are stealing even more, you have real dangerous problems, medicaid is not one of them.

Yes, the biggest spend of any government should be the social welfare of it's citizens, anything else is straight up psychopathic.

Faeriedust Fri, 03/02/2018 - 06:29 Permalink

Entitlements are going up because BABY BOOM.  For the same reason, government expenditures exploded while these people were all working and paying taxes.  Now it will take 30 years for them to die off and clear the books.  That's all.  30 years.  Of course, it would help if the corrupt feeders at the pig trough hadn't blown off the windfall earnings produced by all those taxpayers paying in their Social Security and income taxes.  But 30 years is still a blink in terms of a nation's life.  A single oversized generation, and then everything can go back to "normal" or paygo.

Which isn't to say that some institutional changes to Medicare/Medicaid wouldn't help things along.  Like, Universal Medicare, which would share the burden of paying for the medical costs of the elderly among the much less medically needy younger generations.  And put ALL medical treatment under federal regulation, which gods know, we need.  We could recoup half the shortfall just by extracting the excessive profits out of the medical market and providing universally mediocre medical care without bankruptcy.  By categorically refusing funding to excessively heroic "care" (long-term maintenance of the comatose, massive investment in Stage IV cancer treatment, organ transplantation and chronic kidney dialysis), we could cut the costs of health care in this country in half, freeing up 10% or so of national GDP.

theprofromdover Fri, 03/02/2018 - 06:47 Permalink

Social Security, Health insurance and other Entitlements are the big drag on the economy.

I think the yoooge military budget is also really a form of welfare -keeping folks in jobs either uniformed or in manufacturing.

So Trump's attempts to bring the jobs back to the mainland and reform Medicare are something no-one else was trying to do.

Maybe in his second term he can attack the MIC and the Foodstamps, and maybe he could attack the Foreign Aid and the Banks now.