United States Federal Spending: Where Does the Money Go

Previously we took a look at how we got into the financial mess that is the current state of the federal budget, but in order to really understand what is going on it is necessary to examine where the money is being spent. To perform this analysis data were taken from publicly available information available at whitehouse.gov - you can take a look yourself if you wish.

First of all, using the broad categories defined in the document - National Defense, Human Resources, Physical Resources, Net Interest and Other - lets take a look at spending trends since 1940.

Just a quick glance at the chart reveals the two categories of federal spending that have increased dramatically in recent years: Human Resources (the red line) and National Defense (the blue line). So we have two areas of the federal government that are growing much faster than the rest, and in the case of Human Resources, growing at an extremely rapid pace. Information from whitehouse.gov also breaks down spending by executive department for fiscal 2010:

• $868.762 billion - Health and Human Services
• $692.031 billion - Defense
• $502.980 billion - Treasury (then only one that went down from 2009)
• $209.265 billion - Labor (more than a 50% increase from 2009)
• $142.016 billion - Agriculture
• $124.565 billion - Veterans Affairs
• $106.944 billion - Education (almost doubled over 2009)
• $90.944 billion - Transportation
• $65.518 billion - Housing and Urban Development
• $52.903 billion - Homeland Security
• $38.278 billion - Energy
• $30.333 billion - Justice
• $25.726 billion - State
• $16.714 billion - Commerce
• $12.042 billion - Interior

However, these values do not include Social Security and Medicare.

• $796.737 billion - Social Security
• $451.636 billion - Medicare

Remember, the deficit for fiscal 2010 was approximately $1,919 billion. Now to explode some myths: you could zero out the entire Department of Defense and still not balance the budget; you could eliminate Health and Human Services and still not balance the budget; you could remove both the Department of Defense and the Department of Health and Human Services and still not balance the budget. (This writer is not proposing doing either of those things but presents them solely as an illustration of how massive the problem is.)

Now lets return to the chart above where it is clearly shown that the fastest growing and largest spending is occurring in the broad category of Human Resources.

Here we see the top four expenditures are:

• $706.737 billion - Social Security
• $622.210 billion - Income Security
• $451.636 billion - Medicare
• $369.054 billion - Health (Medicaid)

Here we have it, entitlement spending. The largest growing and biggest portion of the federal budget. And it takes almost every last dime of this spending to close the gap between income and expenditures at the federal level.

That is not going to happen.

There is no politician currently in office with sufficient courage - or sufficiently suicidal - who will dare attempt to balance the federal budget by making dramatic cuts in any one of these programs, much less all of them simultaneously. Nevertheless the charts above illustrate clearly the exploding costs in these areas and they must be contained if we are ever to restore fiscal sanity to the federal government.

There will be social unrest in the country when these programs are cut. Nevertheless we are going to have to make cuts here as this is the only place in the federal budget where meaningful cuts can be made.

Realistically, trying to fix the problem through spending cuts alone is not going to work. It is simply not politically feasible and the resulting social chaos will make the cut spending only approach unworkable. Likewise, as we ill see in the next instalment in this series, raising taxes alone is also not workable solution.

The only solution available to us is to both cut spending and raise taxes. Hopefully the next Congress will get serious about the problem and find a way to ease us out of this mess before it overwhelms us.