Where the money goes
Once again, it’s time to look at the state of the Federal budget, and get our heads around how well—or badly—we’re doing as a republic. The short answer is…not well. Let’s take a look at a simple chart of the last full year of federal spending and receipts, which is Fiscal Year 2012. The chart is clickable, so you can see a full-sized version.
We spent $3,795.55 billion, while taking in $2,469 billion in taxes and receipts. That gave us a deficit for the year of $1.326.55 billion.
Much of the spending is required by law. Mandatory spending includes Social Security, Medicare, Medicaid, and retirement benefits for the military and federal workers. In addition, interest on the national debt of $227.73 billion must also be paid, by law. Overall, $2543.51 billion in spending was legally required. That’s 67% of all federal spending.
Keen observers will note that revenues of $2,469 billion do not cover that amount of mandatory spending. So, we missed being able to pay for required spending alone by by $74.51 billion. Essentially, we borrowed money to pay one-third of the interest on the money we’ve already borrowed.
Actually, we’re pretty lucky when it comes to the whole interest payments deal, because the average interest rate on the debt is hovering at around 2%. Every additional percentage point in that interest rate translates to about $115 billion dollars in additional interest charges every year. If interest rates were to rise to the historical average of 6%, that would add about $575 billion per year to cost of servicing the debt. That would raise the annual debt service costs from $228 billion to $803 billion. That’s about $44 billion more than we currently pay for defense. So, let’s hope for a weak, struggling economy, right? Gotta keep those interest rates at historical lows.
Anyway, the remaining spending is all discretionary, so, we chose to spend another $1,252.53 billion in discretionary spending. $759.11 billion was spent on killing foreigners. Everything else the Federal Government does—all of the executive departments, science and medical research, the Judicial branch, and giving money to heathen foreigners to try and make them our friends—cost us $492.42 billion. Giving money to the heathen foreigners—also known as foreign aid—accounted for about $38 billion for the year, or 1% of federal spending.
So, what can we extrapolate about the future? Well, we know that, even if interest rates stay steady, mandatory spending on entitlements will rise as the huge population bolus that is the Baby Boom generation begin retiring. Without either significant new taxes and/or significant entitlement cuts, re. That means that, in the not-too-distant future, revenues will not cover even the cost of mandatory entitlement spending.
We can—and probably will—ameliorate this by slashing defense. It’s what the Europeans have done, after all. There’s this huge chunk of money that goes to defense, and it gives us a defense budget larger than the defense budgets of the next 19 largest nations combined. Obviously, we will be told, we’re acting like a bunch of paranoid maniacs, so we can cut defense by at least half, and still have a huge defense establishment in world terms. So, we got that going for us.
So, that’s the situation for FY 2012. In a couple of months, we’ll get a final accounting of FY 2013, and we’ll see where we stand. Revenues were significantly higher in 2013, and spending growth doesn’t appear to have kept pace, so the deficit probably fell to somewhere in the vicinity of $800 billion.
That’s progress, I guess, though one year does not make a trend. Let’s see how much Obamacare is gonna cost us next year, assuming it isn’t delayed because of all the fail.
Anyway, please feel free to show this spending chart to your ignorant friends.
UPDATE: Here’s a more detailed look at federal spending in 2012 by government function:
|Government Function||Amount (billions)|
|Education, Training, Employment and Social Services||$139.212|
|Veterans Benefits and Services||$129.605|
|Commerce and Housing Credit||$79.624|
|Administration of Justice||$62.016|
|Natural Resources and Environment||$42.829|
|Community and Regional Development||$31.685|
|General Science, Space and Technology||$30.991|
|Undistributed Offsetting Receipts||$-98.897|
These are total spending amounts by function, and include both mandatory and discretionary spending in each line item.