The Budget of the United States
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
- Trends in government outlays It is this apparently "out-of-control" growth that has many
people so concerned.
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.
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
- Talk of spending reductions made more sense in the 1960s
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.
- 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?
Are Taxes in the United States Too High?
A factor that is fueling much of the demand
for smaller government and less spending is the
widely held belief that
high taxes stiffle investment, initiative, hard work, and
Furthermore, what about the claim that taxes have become such a burden that people and
companies have no incentives to create jobs and increase productivity?
- 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,
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.
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Last revised January 9, 1997.