The Budget of the United States Government

Background Information

The Office of Management and Budget has prepared a citizen's guide to the budget Although somewhat partisan (the President "controls" OMB) this information is nevertheless quite good.

How Bad Is The Situation?

Consider the conventional wisdom: public spending is growing out of control.

• Trends in government outlays It is this apparently "out-of-control" growth that has many people so concerned.
• Deficits, moreover, appear to be a constant feature of American government, which seems always to spend more than it takes in.

• Also, look at the "National Debt Clock" that purports to show how fast the budget deficit is growing
  and how much each family in America owes. It seems to confirm the popular perception that the government is making future generations prisoner in a mountain of debt.

• But for a different view of the situation see an alternative interpretation of government spending.

What the money goes for.

• Outlays By "Superfunction"
• Outlays By Agency

Types of outlays:

• In the early 1960s discretionary spending consumed the lion's share of the budget. Discretionary spending categories consist of those normally thought of as government functions. They include administrative costs of various departments and agencies and programs for which Congress must appropriate funds each year. Examples: defense and international security, environmental protection, law enforcement, space, medical and scientific research.
• Expenditures for entitlements--programs that make payments to individuals and businesses that meet eligibility criteria, required only about a third of federal outlays. Once an entitlement is enacted into law, it is not subject to the annual appropriations process. Instead, Congress controls spending for these programs only indirectly by establishing by setting eligibility and benefit levels. Among the best know are Social Security and Medicare.
• Interest payments on the national debt, also a mandatory spending category, was about 6 percent of the budget.

Changes in the composition of the federal budget

• By the 1990s, entitlements and interest payments consumed almost two thirds of the budget; discretionary spending has dropped to a little more than a third.
• The changes since the 1960s appear ino Outlays for Major Spending Categories
• This is an extremely important graph for it shows
  the constraints faced by Congress and the president. So
  much of the budget is tied up in mandatory spending today
  budget cutting is extremely difficult politically and
  fiscally.

• Talk of spending reductions made more sense in the 1960s when
  a smaller proportion of outlays went for entitlements
  and other mandatory spending.

• In the 1990s, however, programs normally thought of
  as targets for reduction constitute a relatively
  small portion of federal expenditures.

• This fact, more than incompetence, the control
  of government by tax-and-spend liberal Democrats,
  or entrenched special interests, explains why the
  deficit is so difficult to tame.

Federal spending as a proportion of the economy

• Outlays (and revenues) as a percent of Gross Domestic Product (GDP)
• The next figure, Outlays for Types of Budget Items, clarifies the changes in types of spending over the years. In particular, note that discretionary spending has actually declined in the 15 years.
Moreover, these expenditures constitute a relatively small part of overall outlays. These figures suggest to me that:

Run away spending

Government spending is climbing but not at the rate commonly thought and not for the purposes commonly believed.

"Liberalism"

Contrary to what many think, "liberals" have not dominated government After all, spending for their favorite programs has remainded more or less steady.

Real growth

Most tax dollars go to individuals as payments or "in-kind" benefits, to defense, and to interest payments.

Should the constitution be amended to require a balanced budget?

• The case against a balanced budget amendment

Are Taxes in the United States Too High?

• First, note that federal revenues (taxes) as percent of the gross domestic product have not increased very much in the last 30 years. For example, income taxes have remained a more or less constant proportion of GDP.
• Moreover, corporate taxes have actually decreased.
• Stated differently, the tax burden on the American econmomy does notappear to to have changed much in the past several decades.
• In addition, other nations whose economies are performing as well as are and whose standard of living is also comparable generally carry a greater burden. Tax revenues as a percent of gross domestic policy in European and other developed nationsis higher, in some cases much higher, than in the United States.
• So, if the economy is not performing as well as everyone desires, the immediate cause is not necessarily burdensome taxes.

• If this argument is true, then one would expect to find a relation between taxation and economic growth.
• It appears, however, that this relationship doesn't hold. Consider, for example, tax revenues and economic growth in Japan and Europe.

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