Free Markets, Free People

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.

2012 Federal Budget

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)
Social Security $778.574
National Defense $716.300
Income Security $579.578
Medicare $484.486
Health $361.625
Net Interest $224.784
Education, Training, Employment and Social Services $139.212
Veterans Benefits and Services $129.605
Transportation $102.552
Commerce and Housing Credit $79.624
Administration of Justice $62.016
International Affairs $56.252
Natural Resources and Environment $42.829
General Government $31.763
Community and Regional Development $31.685
General Science, Space and Technology $30.991
Energy $23.270
Agriculture $19.173
Allowances $0.125
Undistributed Offsetting Receipts $-98.897
TOTAL $3,795.547

These are total spending amounts by function, and include both mandatory and discretionary spending in each line item.

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17 Responses to Where the money goes

  • This is where both parties need to recognize that reality bites.  We can’t keep on living beyond our means.  I agree with the GOP that we need entitlement reform, a restructuring of the welfare system, and have to develop a sustainable budget.  Why can’t the two parties focus on that?  That’s bigger than Obamacare, same sex marriage, diplomacy with Iran, or is hay of the other issues out there.  This cuts to the economic sustainability of the country.  The Democrats aren’t pushing this hard enough — I support Obama, but I agree with the GOP critique on the need for real budgetary reform.  The two sides should be able to get together and do this!

    • Right, you say that every time you have an opportunity to demonstrate your pragmatic moderate libertarian valued approach.
      Then you call the Republicans radicals, tea partying obstructionists holding the government hostage because they won’t give Obama and Reid what they want when it comes to spending.
      No one is fooled.

      • Romney/Ryan actually ran on entitlement reform and a budget! They lost big time.
        The voters were more worried about Romney banning tampons or losing their EBT cards.
        What’s funny is that putting our finances in order would help preserve whatever safety net we can afford.
        Instead we will end up like California, where democrats cut Medical (medicaid) before they dare cut state employee salaries and bennies.

    • Well, Scott, Paul Ryan had a pretty good start on all of this, but the Democrats immediately ran ads showing him pushing Grandma off the cliff.
      If you want more substantive discussions, the side running such ads probably needs to be punished. But instead, that side has been rewarded.
      Did you see any part of the media mention the budget issue in regards to the debt ceiling? No.
      Did any Senate  Democrat get hurt by not passing budgets for years. No.
      Did Obama get shamed for only offering up budgets after years of not doing so, and then having them go down 98-0?  No.
      If the media were to cover those things as if Republicans had done them, I think the Democrats would be more mature and willing to negotiate.
      Instead, with the media flying air cover, they can be totally irresponsible and not be held accountable for any of their actions.
      \This is a serious corrupting influence and wise leftists should be worrying about this.

    • This comment is why Obama, Reid & Pelosi call people like Scott useful idiots.

  • Where are Unemployment, Welfare, and Disability? Are they part of mandatory spending? I’m thinking that if they are, then getting people working and off of the dole moves them out of the red and over to the blue as far as paying income taxes. or do I have that wrong?

  • Erb says, “I agree with the GOP that we need entitlement reform, a restructuring of the welfare system, and have to develop a sustainable budget.  Why can’t the two parties focus on that?”  Where have you been for the last 10 years.  There is one party that has focused on this and it has been the GOP!!!  The GOP has tried to push entitlement reform for over a decade.  Where were you when Bush II tried to reform SS almost 10 years ago?  And it is Obama who has knocked the welfare system out of kilter by eliminating the work provisions through executive action – but you “support Obama.”  That is laughable!  And as far as a sustainable budget, you have got to be kidding me – it has been the Democrats who have refused to pass a budget for the past 4 years – there has been no “two party” problem there –  it has been all one party.  And don’t even try to tell me the Dems in the Senate passed a budget this year –  yeah they did and then refused to conference with the House to resolve the differences.  And to say the “Democrats aren’t pushing hard enough” is ridiculous – they aren’t pushing at all!!!  You better be careful, Erb. For someone who says “I support Obama’ and then call this issue “bigger” than any other could make you a pariah among your academia leftards – you already are one here!!!

    • 1. He isn’t very smart.
      2. He is disingenuous when he claims to advocate smaller government, balanced budgets, etc..  Since he will always take the side of Democrats when it matters, tossing meaningless platitudes without taking any substantive action, costs him nothing and he thinks that it allows him to portray himself as unbiased, non-ideological, non-partisan by just pointing to such immaterial quips.
      Because of #1, his tactics for #2 fail when the audience has critical thinking skills and a memory span longer than a few days.
      I don’t know why he bothers to come to Q&O.  He’ll never fool people, nor persuade anyone to side with Democrats.  He could go to a Democrat/”liberal” website and have great success winning sycophants and impressing the gullible.   Odd that he chooses the path of self-flagellation.

  • One thing I’d like to see and never seen is a break out in federal worker salaries.  The point I’ve heard is that they are paid at a premium of 30% over their private counter parts, not to mention benefits that would make a UAW worker blush.  What happens if they get ‘aligned’.  Considering that the payout of some of these departments is sometimes less than half of the cost of the department, I have to believe it would make a serious dent.

    • They should do an annual rehire for all positions with 10% wage reduction each year until no one shows up. Then calibrate it back up.
      Firefighters in Cali always whinge about how they have to be paid astronomical sums because no one is willing to rush into burning buildings for less…except when they have one opening 300 people apply for it rather belies that argument.

  • Thanks for posting – keep up the great work!
    Common Cents
    ps. Link Exchange?

  • There’s also the question of civil Service employment.  From OPM source:  From the beginning of the data available (1962) the number of government employees was initially dominated by the military.  But that declined heavily so that by the end of the Viet Nam war (1971) Civil Service and Military employment were equal.  But as the military numbers declined the Civil Service rose so that by 1991 there were 1,000,000 more Civil Service than military, and today that difference is approximately 1.2 million.  When you break that up for the last 3 administrations, the number of Civil Service was 2.95 Million at the beginning of the Clinton Administration.  But to his (and the GOP dominated Legislature) credit, they entered a period referred to at the time as “Re-inventing Government” which decreased the numbers of Civil Service by over 300,000.  During the Bush years, those numbers remained steady (4,000 less for his last year versus his first) but then started increasing with the Obama Administration.  Obama has increased Civil Service employment by over 120,000 to 2011 where the data ends.

  • And having ended the “Government Shutdown” Crisis, Obama seemingly has learned nothing and steadfastly believes “I WON!”  Jack Lew, Treasury Secretary, on Meet The Press said President Obama will fight any and all spending cuts in the continuing budget battles.  Whatever petitions MoveOn.Org or any other entities may push for the arrest of individuals like Eric Cantor or Ted Cruz for sedition, they can equally apply to Barack Obama for the same cause.

  • If I were a prog this is what I’d say about the 1st chart.  “Look at individual taxes and look at corporate taxes.  If corporations were made to pay as much as individuals then the budget would be close to balanced.”
    Then there is reality.  First off, corporations are made up of individuals.  If you tried to tax them more and did so under the assumption that they wouldn’t change their ways then reality is going to bitch slap you.  The obvious way they would change would be to try to avoid paying the higher rate either through lobbying for an exception or moving over seas.  Then there is also the reality that even if nothing else changed you’d be sending more money to government who is notoriously a bad steward on the fiscal front.  Instead of balancing the budget it would end up being an invitation to spend even more.