D.C. Decoder 101: How Washington spends your money

There's a lot of talk about cutting the US deficit but very little actual cutting of deficit. One reason? There's not much easy to cut. Decoder explains the six ways Washington spends money. 


The federal government is the biggest spender in the US, and maybe the world. How big? So big that in 2011 Washington laid out a cool $3.6 trillion. (Not million, not billion, but trillion, with a “T”.) So big that its budget is equal to about 20 percent of the nation's entire gross domestic product. So big that if you’re like most citizens you have little idea exactly what it is that Uncle Sam is buying in your name.

Oh sure, you know generally that Social Security is expensive and the Pentagon isn’t cheap, and so on. But many Americans are unaware of the relative size of these and other general budget categories. Plus, despite what you may hear on cable news shout shows, there is no magic fount of wasteful spending the elimination of which will put the US budget in the black. Lazy bureaucrats? Too few. Foreign aid? Too small. Military bands? Please.

This doesn’t mean government operations don’t need to be efficient or effective. It does mean that the US budget is heavily entwined with the lives of the nation’s citizens. That’s why big cuts, however necessary to balance the budget, are so difficult for many politicians to make.

HEALTH CARE. As with many US family budgets, the largest single category of federal spending is “health.” Three big health programs – Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) – account for 21 percent of the $3.6 trillion 2011 federal budget, according to figures compiled by the Center on Budget and Policy Priorities (CBPP).

Of these, Medicare is the Big Kahuna. This program, which funds health care for the elderly and Americans with disabilities, accounts for two-thirds of federal health spending (about $486 billion), according to CBPP.

Medicaid provides health services for certain low-income people and families, and CHIP covers kids growing up in financially tight circumstances. Both are partly funded by states, as well as by Washington.

SOCIAL SECURITY. Just behind health is Social Security, which provides income benefits to retired folks, the disabled, and some other recipient categories. This program accounts for 20 percent of Washington’s budget, figures CBPP.

Social Security checks go out to a little more than 55 million people, according to the program’s own figures. Of these, 44 million are retirees or their dependents, and 10 million are disabled workers or their dependents.

For retirees, Social Security’s average monthly benefit at the beginning of 2012 was $1,230, according to the program.

DEFENSE. Defense used to be the biggest single item by far in the US accounts. In 1962, at the start of the cold war between the US and the Soviet Union, it accounted for 52 percent of US government spending. As recently as 1987, at the height of the Reagan-era military buildup, it was 30 percent of the budget, and still category No. 1.

But the end of the cold war enabled the US to pare back on some fixed military costs. The aging of the population and the dynamics of medical inflation have driven up health and Social Security expenditures. As a result, defense is now No. 3, by CBPP’s count. It’s also 20 percent of the US budget, but it’s a few billion bucks smaller than the Social Security program.

Right now, operations in Afghanistan and the withdrawal of forces from Iraq drive a big portion of the Pentagon’s budget. These will cost about $118 billion in 2012, according to White House budget documents.

After this, people, not weapons purchases, are the military’s biggest fixed cost. (That’s not true in all years, as procurement tends to go up and down.) Currently there are 1.2 million active duty personnel in the US armed forces. The base price of maintaining this force will run to about $119.6 billion in 2012, according to the Department of Defense.

In contrast, base weapons procurement in 2012 will cost about $106 billion. Of that, $43 billion is going to the Navy, $39.6 billion to the Air Force, and $18.7 billion to the Army.

SAFETY NET. About 13 percent of the US budget goes to programs that could be classified as a safety net for those in need. This includes food stamps, the earned income and tax credits, federal aid to school meals, Supplemental Security Income, and so forth.

Spending on such programs tends to go up and down with the state of the economy. It surged in 2008 as the Great Recession took hold and is only now receding.

Spending on food stamps – known to budget wonks as the Supplemental Nutrition Assistance Program (SNAP) – grew by 135 percent from 2007 to 2011, for instance. Sixty-five percent of this jump was due to the weak economy, and 20 percent to temporarily higher benefit amounts, according to the Congressional Budget Office (CBO).

In 2010, the average annual income of households that received SNAP benefits was $8,800, according to CBO. The average benefit was $4.30 per person per day.

INTEREST. Uncle Sam can’t pay for his whole budget with the tax dollars he collects every year. He borrows a substantial sum – $1.3 trillion in 2011, for instance. This borrowing is the deficit. It accumulates as the federal debt, which is now $10 trillion and rising.

The interest on this big pile of debt now eats up about 6 percent of annual US spending, or about $230 billion. Given the size of the debt, the size of the projected deficit, and the magic of compound interest, this is an expense that could explode in coming years. The Concord Coalition, a budget watchdog group, estimates that if Congress and the White House follow their current policy path, interest will hit $934 billion a year by 2022.

EVERYTHING ELSE. So far we’ve laid out some 80 percent of Uncle Sam’s expenses. But you’ll notice we haven’t mentioned a lot of what people consider to be the federal government. Where’s the FBI? Where’s the EPA, the Interior Department, and so on? What about scientific research?

That comes under the miscellaneous category known as “stuff we haven’t mentioned so far because it’s not very big, relatively speaking.” All together it accounts for the last 20 percent of US spending.

That’s why it’s hard to reduce the deficit by cutting nondefense bureaucracy. You can’t balance the budget by squeezing only one-fifth. And as for (non-security assistance) foreign aid, it accounts for 1 percent of US spending. In fact, the entire State Department/US AID budget is less than 1 percent of the US budget, with the largest expenses being support for Iraq, Afghanistan, Pakistan, and other so-called “frontline” states.

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