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Government spending in the United States is the spending of the federal government of the United States and the spending of its state and local governments.
The US government's Bureau of Economic Analysis as of Q3 2023 estimates $10,007.7 billion in annual total government expenditure and $27,610.1 billion annual total GDP which is 36.2%. [1]
This government total excludes spending by "government enterprises" which sell goods and services "to households and businesses in a market transaction." These "government enterprises" include the U.S. Postal Service, Federal Housing Administration and other housing authorities, flood insurance, transit systems, airports, water ports, and utilities. [2] However,"their investment, interest payments, and operating surplus (or deficit) are recorded as government transactions." [2]
BEA also shows $4,794.8 billion government consumption expenditures and gross investment, which excludes transfer payments (like social security), subsidies and interest. [1] BEA describes its different totals. [3]
OECD for 2021 shows general government spending at 44.9% of GDP, or $31,538 per capita. [4] BEA's percentage is smaller because it just includes government spending. OECD's total is larger because it also includes fees, e.g. tuition payments at public colleges. [5]
Figures published by the International Monetary Fund for 2022 shows general government spending at $9,372 billion, or 36.7% of GDP. [6]
For most governments around the world, the majority of government spending takes place at the federal/national level. As of 2019, in the United States, approximately 55% of government spending is spent by the federal government, while the remaining 45% of government spending is spent by state and local government. [7] [8] Federal government spending in the United States can be broken down into three general categories: mandatory/entitlement spending, discretionary spending, and interest on government debt. [9]
Mandatory/entitlement spending is spending for programs with funding levels that are automatically determined by the number of eligible recipients in those programs. [8] Mandatory programs are created under authorization laws, meaning that Congress must provide whatever funds are necessary to keep these programs functional. Funding for these programs cannot be adjusted in the annual budget process; on the contrary, the only way Congress can change funding levels for these programs is by amending the authorization laws directly. Each year, the Office of Management and Budget provides an estimate of required funds for these programs, which is included in the annual budget. [9] [10]
Mandatory programs include: [11]
Figure A provides a breakdown of the major mandatory government spending categories as of the fiscal year 2019 budget approved by Congress. As Figure A suggests, Social Security is the single largest mandatory spending item, taking up 38% or nearly $1,050 billion of the $2,736 billion total. The next largest expenditures are Medicare and Income Security, with the remaining amount going to Medicaid, Veterans Benefits, and other programs. [11] [12]
Discretionary spending is optional spending that is determined by Congress each year through an annual appropriations process. [8] After mandatory spending levels have been estimated by the Office of Management and Budget, discretionary spending is determined by both chambers of Congress and usually includes input from the incumbent president of the United States. Subcommittees in both the House of Representatives and the Senate appropriate discretionary funds for their respective areas, and the two chambers reconcile their differences. Once a final spending bill has been created, passed and signed by the president, the bill becomes law. [8] [9]
Discretionary spending includes: [13]
Figure B provides a snapshot of the major discretionary government spending categories as of the fiscal year 2019 budget approved by Congress. As the figure suggests, over 50% of discretionary spending is attributed to national defense. The remaining 48% of funds is divided among non-defense items such as transportation and education. Total discretionary spending approved for the fiscal year 2019 is $1,305 billion, just 28% of total spending. [10]
National defense spending is any government spending attributable to the maintenance and strengthening of the United States Armed Forces, including the Army, Navy, Marines, and the Air Force. [14] As of the fiscal year 2019 budget approved by Congress, national defense is the largest discretionary expenditure in the federal budget. [13] Figure C provides a historical picture of military spending over the last few decades. In 1970, the United States government spent just over $80 billion on national defense. Over the next two decades, national defense spending increased steadily to around $300 billion per year. [10] Military spending fell in the 1990s, but increased markedly in the 2000s as a result of the War in Afghanistan and Iraq. Military spending was cut slightly during the Obama administration, but the Trump administration planned to ramp up military spending to combat ISIL. National defense spending was expected to be $678 billion in 2019, an amount greater than the military expenditures of the next nine countries combined. [15]
Key defense expenditures typically include: [16]
Oftentimes, federal governments spend more money than they collect in tax revenue in a given year. When the government spends more than it brings in, it runs a Budget Deficit that year. [17] In order to pay for the extra spending, governments issue debt. Government debt is the amount of money credited from individuals, firms, foreign entities as well as the federal government itself through the federal reserve system. [8] Debt accrues over time. Most public debt is held in the form of treasury bills and bonds, and the government has to repay debt over time. In order to provide an incentive for individuals, businesses and other entities to lend money, the government must also pay these parties interest on the debt. [18] The interest expense for fiscal year 2019 is $363 billion, or 7.9% of the total budget. According to estimates from the Office of Management and Budget, interest on government debt is expected to more than double by 2028 and account for a larger percentage of total expenditures. [10]
The Census of Governments for 2017 shows $3.7 trillion total of state ($2.3) and local ($1.9) government expenditures. The total is less than the parts, to exclude duplicative inter-governmental transactions. The data are available for detailed categories of revenue and expenditure for each state, and for the total of local governments in each state. [19]
At the beginning of the 20th century, the majority of government spending in the United States took place at the local level. However, federal spending increased relative to state and local spending as a result of World War I and World War II, and by the 1930s, state and local government spending accounted for less than one half of government spending. By 2019, federal spending was more than 20% of GDP, while state and local spending hovered around 17% of GDP. [18] [20] As a result, in recent years, state and local governments account for approximately 45% of total government expenditures. [8] State and local government spending is typically spent in 6 broad categories: elementary and secondary education, higher education, health, welfare, police and safety, and transportation. [8] [21] Over the last few decades, funding for education at the state level has fallen, while funding for health has more than doubled. [22]
While federal governments often run budget deficits (where government spending exceeds government tax revenue), state governments usually have balanced budgets. [8] A balanced budget is when government spending in a given year equals government revenue in that year. [23] [24] This high degree of fiscal balancing is a result of most states in the U.S. having balanced budget requirements. [25] A balanced budget requirement is a law that requires a government to balance its budget annually, such that government spending equals government revenue. [26] There are two types of balanced budget requirements: ex-post balanced budget requirements, and ex-ante balanced budget requirements. An ex-post balanced budget requirement stipulates that a government must balance their budget by the end of each fiscal year, while an ex-ante balanced budget requirement dictates that a state must adopt a balanced budget at the beginning of each fiscal year. Ex-ante balanced budget requirements rely on estimates and assumptions about future costs and revenue growth, so they are more easily manipulated. [8] [26]
With a population of nearly 40 million as of 2018, California has by far the largest annual state expenditures albeit lower on a per-capita basis than 20 smaller states. [27] [28] California receives a significant amount of money from the federal government, especially for healthcare and welfare programs, but also has large in-state expenditures. [29] On a per-capita basis, California receives less federal money than 12 lower population states. According to California's Department of Finance, the state's 2017-2018 enacted state budget includes over $180 billion in state funds. [27] As can be seen below, Table 1 gives an overview of California's 2017-2018 enacted state budget. As the table suggests, health care and K12 education represent California's largest expenditures of state funds. The largest health care expenditure is for California's Medi-Cal program, a health insurance program for low-income families in California. [30] [31] In addition, health care spending is focused on women's health services, treatment for addiction, and dentistry. [30] As Table 1 suggests, California also spends significantly on higher education, police, and transportation, with smaller portions of funding attributable to environmental protection and other activities. [27]
| State Agency | State Funds ($ Billions) | Percent (%) of Total |
|---|---|---|
| Health Care | $60.3 | 33% |
| K12 Education | $54.2 | 30% |
| Higher Education | $15.4 | 8% |
| Corrections and Rehab | $13.9 | 8% |
| Transportation | $13.0 | 7% |
| General Government | $7.9 | 4% |
| Legislative, Judicial, and Executive | $6.7 | 4% |
| Natural Resources | $5.2 | 3% |
| Environmental Protection | $3.2 | 2% |
| Business and Consumer Services | $1.7 | 1% |
| Other | $1.6 | 1% |
| Total | $183.3 | 100% |
The government budget balance, also referred to as the general government balance, public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting the budget balance is calculated using only spending on current operations, with expenditure on new capital assets excluded. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A government budget presents the government's proposed revenues and spending for a financial year.
The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the Treasury and other federal agencies. The terms "national deficit" and "national surplus" usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. In a deficit year the national debt increases as the government needs to borrow funds to finance the deficit, while in a surplus year the debt decreases as more money is received than spent, enabling the government to reduce the debt by buying back some Treasury securities. In general, government debt increases as a result of government spending and decreases from tax or other receipts, both of which fluctuate during the course of a fiscal year. There are two components of gross national debt:
A balanced budget amendment is a constitutional rule requiring that a state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
In American public finance, discretionary spending is government spending implemented through an appropriations bill. This spending is an optional part of fiscal policy, in contrast to social programs for which funding is mandatory and determined by the number of eligible recipients. Some examples of areas funded by discretionary spending are national defense, foreign aid, education and transportation.
The military budget of the United States is the largest portion of the discretionary federal budget allocated to the Department of Defense (DoD), or more broadly, the portion of the budget that goes to any military-related expenditures. The military budget pays the salaries, training, and health care of uniformed and civilian personnel, maintains arms, equipment and facilities, funds operations, and develops and buys new items. The budget funds six branches of the US military: the Army, Navy, Marine Corps, Coast Guard, Air Force, and Space Force.
PAYGO is the practice in the United States of financing expenditures with funds that are currently available rather than borrowed.
The United States budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defense programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects. CBO estimated in February 2024 that Federal debt held by the public is projected to rise from 99 percent of GDP in 2024 to 116 percent in 2034 and would continue to grow if current laws generally remained unchanged. Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2034, pushing federal debt higher still, to 172 percent of GDP in 2054.
The budget of the United States government for fiscal year 2007 was produced through a budget process involving both the legislative and executive branches of the federal government. While the Congress has the constitutional "power of the purse", the President and his appointees play a major role in budget deliberations. Since 1976, the federal fiscal year has started on October 1 of each year.
The United States federal budget is divided into three categories: mandatory spending, discretionary spending, and interest on debt. Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain programs that are required by law. Congress established mandatory programs under authorization laws. Congress legislates spending for mandatory programs outside of the annual appropriations bill process. Congress can only reduce the funding for programs by changing the authorization law itself. This normally requires a 60-vote majority in the Senate to pass. Discretionary spending on the other hand will not occur unless Congress acts each year to provide the funding through an appropriations bill.
The 2008 United States Federal Budget began as a proposal by President George W. Bush to fund government operations for October 1, 2007 – September 30, 2008. The requested budget was submitted to the 110th Congress on February 5, 2007.
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The United States Federal Budget for Fiscal Year 2010, titled A New Era of Responsibility: Renewing America's Promise, is a spending request by President Barack Obama to fund government operations for October 2009–September 2010. Figures shown in the spending request do not reflect the actual appropriations for Fiscal Year 2010, which must be authorized by Congress.
The United States Federal Budget for Fiscal Year 1997, was a spending request by President Bill Clinton to fund government operations for October 1996-September 1997. Figures shown in the spending request do not reflect the actual appropriations for Fiscal Year 1997, which must be authorized by Congress. The requested budget was submitted to Congress on February 5, 1996.
The United States federal budget consists of mandatory expenditures, discretionary spending for defense, Cabinet departments and agencies, and interest payments on debt. This is currently over half of U.S. government spending, the remainder coming from state and local governments.
The 1996 United States federal budget is the United States federal budget to fund government operations for the fiscal year 1996, which was October 1995 – September 1996. This budget was the first to be submitted after the Republican Revolution in the 1994 midterm elections. Disagreements between Democratic President Bill Clinton and Republicans led by Speaker of the House Newt Gingrich resulted in the United States federal government shutdown of 1995 and 1996.
The 2013 United States federal budget is the budget to fund government operations for the fiscal year 2013, which began on October 1, 2012, and ended on September 30, 2013. The original spending request was issued by President Barack Obama in February 2012.
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Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to reduce the federal government budget deficit. Government agencies including the Government Accountability Office (GAO), Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the U.S. Treasury Department have reported that the federal government is facing a series of important long-run financing challenges, mainly driven by an aging population, rising healthcare costs per person, and rising interest payments on the national debt.
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