Wednesday, January 23, 2013

Federal Budget 101 - Where Does the Money Go?

[Courtesy of the National Priorities Project]

In fiscal year 2011, the federal government spent $3.73 trillion. These trillions of dollars make up a considerable chunk—around 24 percent—of U.S. Gross Domestic Product (GDP). That means that federal government spending makes up a sizable share of all money spent in the United States each year. So, where does all that money go?

Mandatory and Discretionary Spending

The U.S. Treasury divides all spending into three groups: mandatory spending and discretionary spending and interest on debt. Interest on debt, which is much smaller than the other two categories, is the interest the government pays on its accumulated debt, minus interest income received by the government for assets it owns. This pie chart shows all projected federal spending in 2013 broken into these three categories.

Discretionary spending refers to the portion of the budget which goes through the annual appropriations process each year. In other words, Congress directly sets the level of spending on programs which are discretionary. Congress can choose to increase or decrease spending on any of those programs in a given year.

The discretionary budget is usually around one-third of total federal spending. This pie chart shows how President Obama proposed dividing up discretionary spending in fiscal year 2013.

Mandatory spending is largely made up of earned-benefit or entitlement programs, and the spending for those programs is determined by eligibility rules rather than the appropriations process. For example, Congress decides to create a program like the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. It then sets criteria for determining who is eligible to receive benefits from the program. The amount of money spent on SNAP each year is then determined by how many people are eligible and apply for benefits.

Congress therefore cannot decide each year to increase or decrease the budget for SNAP. Instead, it can review the eligibility rules and may change them in order to exclude or include more people.

Mandatory spending makes up about two-thirds of the total federal budget. By far the largest mandatory program is Social Security, which comprises around one-third of mandatory spending and around 20 percent of the total federal budget. This chart shows where the projected $2.1 trillion in mandatory spending will go in fiscal year 2013.

Finally, putting together discretionary spending, mandatory spending, and interest on the debt, you can see how the total federal budget is divided into different categories of spending. This pie chart shows how President Obama proposed dividing up the whole federal budget in fiscal 2013. Income security programs like Social Security and unemployment insurance together comprise the largest slice, followed by Medicare & Health, and Military.

No comments:

Post a Comment