Order Reprints

Money Talks

By Dr. Gregg Dimkoff
Professor, Grand Valley State University
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Most of us like to joke at least occasionally about where our federal income taxes go. The joke is either that no one knows, or that they are wasted. I’ve had fun with that sort of dark humor too many times to count, most recently with a friend who is well-educated. I was surprised by her reply to my attempt at humor. “Why don’t we just take part of the money from the largest category of federal outlays – the money we are spending on the Iraq and Afghanistan wars – and use it to solve the deficit problem?”

My friend’s comments make an important point: If a well-educated person doesn’t understand the relative sizes of government spending categories, what about everyone else? Here are the details.

The federal government’s fiscal year begins on Oct. 1 and ends on Sept. 30 each year. The year given to the budget’s name is the year in which the budget ends. Thus, the 2011 federal budget covers the period Oct. 1, 2010 through Sept. 30, 2011.

Federal spending falls into three major categories: mandatory, discretionary and interest of the federal debt. Mandatory spending consists of programs mandated by federal law. Unless those laws are changed, Congress has no power to reduce spending levels.

What else is mandatory? Medicare, Medicaid and “other.” The other category includes CHIP funds — money for state’s Children’s Health Insurance Program — as well as several other programs including federal civilian and military retirement benefits and the Supplemental Nutrition Assistance Program (formerly called the food stamp program).

Here’s how much each of these mandatory programs are projected to cost in the 2011 fiscal year:

• Social Security Retirement — $730 billion, 19.6 percent of outlays
• Medicare — $492 billion, 13.2 percent of outlays
• Medicaid — $271 billion, 7.5 percent of outlays
• Other — $596 billion, 16 percent of outlays
• Total mandatory: $2.089 trillion, 56.3 percent of outlays

Did you notice federal nondiscretionary expenditures amount to $2.089 trillion out of $3.72 trillion in federal government outlays? That’s 56.3 percent of total outlays, and they cannot be touched unless the laws creating them are changed.

Interest on the federal debt — a second major category of federal outlays, amounts to $250 billion, or 6.7 percent. Together, mandatory programs and interest on the federal debt amount to 63 percent of federal outlays.

Discretionary spending is the final category of government spending. It consists of security and non-security categories. Security expenditures refer to all activities of the military, homeland security and capture the expense of waging war in the Middle East. Non-security expenditures include various government agencies and departments such as the Departments of Agriculture, Education, Labor, Health and Human Services, Justice, Energy and the National Science Foundation.

• For fiscal year 2011, discretionary outlays are projected to be:
• Security outlays — $846 billion, 22.7 percent of outlays
• Non-security outlays — $530 billion, 14.2 percent of outlays
• Total discretionary outlays: $1.376 trillion, 36.9 percent of outlays

So was my friend right about military expenditures being the largest category of outlays, and that it’s enough money to solve most of our deficit problems? Not quite. Here’s a list of the most expensive outlays to the least expensive:

• Security — $846 billion
• Social Security — $730 billion
• Other mandatory — $596 billion
• Non-security — $530 billion
• Medicare — $492 billion
• Medicaid – $271 billion
• Interest expense – $250 billion
• Total outlays: $3.715 trillion

So, yes, the cost of national security is the country’s largest single component, but it comprises only 22.7 percent of outlays. Further, the amount spent on the Iraq and Afghanistan wars amounted to about $170 billion over each of the past two years. That’s enough for even an NBA star to live on, but the budget deficit estimate projected for 2011 was recently raised by President Obama to $1.65 trillion — nearly 10 times the annual cost of Iraq and Afghanistan. In short, security (mostly military) expenditures are between a fifth and quarter of total federal outlays, and even if we make severe cuts to our activities in the Middle East this year, it won’t be enough to reduce the 2011 deficit to much less than $1.5 trillion. Clearly, Congress has some serious work to do.

  Order Reprints

TAGS:

• column
• finance
• gregg dimkoff
• gvsu
• money talks