How Federal Budget Money Is Spent

Federal spending in the United States usually represents about 20 percent of the total monetary value of all goods produced in the nation during a given year. Simply put, the enormous size of the nation's economy exists because federal spending exceeds the gross domestic product of nearly every country in the world. This spending is done in three ways and thus has four titles.

Mandatory Spending
Mandatory spending are those government payments that are enacted by law, and are not required to have any approval by Congress. Social Security, Medicare/Medicaid, and interest are by far the three largest mandatory payments on the national debt. Social Security and Medicare/Medicaid qualifying recipients are entitled to receive benefits every year which is why they are often referred to as "entitlement" payments.

Since 1960, the mandatory payments have skyrocketed. In 1960, they accounted for about 30 percent of government expenditures. Four decades later, they account for close to 70 percent of the federal budget. The Government Accounting Office(GAO) estimates that it will account for 90 percent of the entire federal budget by 2025 if it is left unchanged. Lawmakers are feeling immense pressure by trying to find an alternative way to fund future payment programs without causing more spending of them.

Discretionary Spending
Discretionary spending is simply the funding that requires approval by Congress, who determines the payments for this kind of spending. Funding levels of discretionary spending can be raised, lowered, or done away with completely during the budget process. A major difference from mandatory spending is that discretionary spending must be appropriated every year or the money will not be allocated.

National defense is the biggest discretionary spending expenditure. Defense spending decreased after the cold war in the early 90's in both percentage of discretionary spending as well as overall dollars for nearly a decade. Since the September 11 terrorist attacks, defense spending is at an all-time high which it now accounts for about half of non-mandatory spending. In 2005, more than $400 million was spent on national defense.

Department of Homeland Security is another discretionary spending item that has seen a rapid increase. Homeland security is the second most discretionary spending expenditure behind only national defense.

Pork-Barrel Spending
Pork-barrel spending is when a particular member's district has a project(s) that benefits a politician(s) in a campaign or during the voting process. Those projects are often hid inside mandatory bills so that the public or possibly members of Congress are unaware of them. Usually committee and subcommittee chairmen are the biggest culprits of this particular kind of spending.

Most members use pork-barrel projects to reward campaign contributors as well as increase their own popularity. The Big Dig in Boston was one of the biggest pork-barrel projects ever that costed $14.6 million to relocate a highway underground.

Deficits, Debt, and Raising Revenue
Annual deficits and the increasing public debt have been on the increase nearly every year since the early twentieth century. Deficits occur when government spending exceeds revenue. Spending goals and revenue are often incorrect because they are estimated a year in advance. Following the terrorist attacks on September 11, federal spending increased unexpectedly while tax revenues fell very sharply because of fighting terrorism. As a result, several years of surpluses were gone a few months after.

In order to prevent the economy from going into a recession, the government will sometimes increase spending to get out of it. or to prevent it. In both 2001 and 2003, the government did that with a combination of tax cuts, one-time tax rebates, and discretionary spending. A two-year recession ended in 1993 after a similar tactic that the government used.

The national debt is the accumulation of years of deficits. Currently, the national debt is just under $9 trillion. Without a national debt, other expenditures could be addressed. According to many economists, large deficit spending slows economic growth because long-term interest rates increase. Others say it has no real impact on the economy.

Revenue is money from taxes, fees, borrowing, and other sources that the government collects. In 2003, about 40 percent of all revenues came from income taxes, and 35 percent came from Social Security taxes.

Raising marginal tax rates on income, payroll tax increase, government spending, and elimination of corporate subsidies are just a few of the many ways that lawmakers can increase revenue in our government.

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