Federal Spending – By the Numbers

by Brian M. Riedl

Overall Spending

• Federal spending has grown twice as fast under President Bush than under President Clinton.
• Federal spending reached $2.157 trillion in 2003, with a budget deficit of $374 billion.
• In 2003, inflation-adjusted federal spending topped $20,000 per household for the first time since World War II.
• Overall for 2003, the federal government spent $20,300 per household, taxed $16,780 per household, and ran a budget deficit of $3,520 per household.

What About Defense and 9/11?

Defense and 9/11 costs certainly played a role in this spending spree, albeit a smaller role than is commonly reported. From 2001 through 2003, spending expanded by $296 billion, of which:

• $100 billion (34 percent) went for defense;
• $32 billion (11 percent) went for 9/11-related costs such as homeland security, international assistance, rebuilding New York, and compensating victims; and
• $164 billion (55 percent) went to new federal spending totally unrelated to defense and 9/11.

Spending outside of defense and 9/11 expenses jumped 11 percent from 2001 to 2003, its fastest growth in a decade.

Where is All the Money Going?

Apart from defense and homeland security, lawmakers enacted:

• A 2002 farm bill that is estimated to cost $180 billion over 10 years. This represents an 80 percent increase over the baseline;
• A 2003 Medicare drug bill that is estimated to cost $400 billion in the first ten years, and as much as $2 trillion in the following decade, according to CBO;
• The 2001 No Child Left Behind Act, which authorized billions in new education spending, and is most responsible for the 65 percent education spending increase from 2001 through 2003;
• Several extensions of unemployment benefits, combined with the automatic new costs that occur when recessions expand unemployment roles, resulting in an 85 percent increase in unemployment spending;
• $20 billion in federal assistance to states, half of which was distributed in 2003; and
• Expansions of the refundable Earned Income Tax Credit and Child Tax Credit, resulting in $10 billion in new spending.

Lawmakers have made no serious attempt to balance new spending with savings elsewhere in the budget. Note that this spending occurred at a time when net interest payments dropped $55 billon due to low interest rates. Net interests costs will soon increase as interest rates climb back up to normal levels.

Discretionary Spending

• From 2001 through 2003, discretionary outlays leaped 27 percent, from $649 billion to $824 billion.
• Excluding defense and 9/11-related costs, discretionary spending increased 16 percent, from $340 billion to $395 billion.
• Assuming passage of the omnibus spending bill, 2004 discretionary spending will grow another 9 percent to $900 billion. Another supplemental spending bill before October would add to that total.

Mandatory Spending

• In 2003, mandatory spending (excluding net interest) reached 11 percent of GDP for the first time ever.
• The Medicare drug benefit is estimated to cost $2 trillion (in 2003 dollars) between now and 2030, or $16,127 per household. This is in addition to the payroll tax and the extra income taxes needed to cover the impending bankruptcy of the Medicare program.
• In the absence of reform, CBO projects that the retiring baby boomers will bring an increase in Social Security and Medicare costs sufficient to raise federal spending by: 
• • 5 percent of GDP by 2030 (the current equivalent of $5,200 per household annually).
  • 13 percent of GDP by 2050 (the current equivalent of $13,500 per household annually).

Nowhere to Cut?

• The $80 billion corporate welfare budget remains sacrosanct. Programs like the Advanced Technology Program (ATP) tax working Americans to subsidize Fortune 500 companies.
• The number of pork projects has quintupled since 1998 to 10,000. Current projects include $725,000 for the Please Touch Museum, $200,000 for the Rock & Roll Hall of Fame, and $150,000 to construct a single traffic light in Briarcliff Manor, NY. Bought and sold by lobbyists, these pork projects now cost $23 billion per year.
• The federal government’s own auditors have identified hundreds of billions of dollars in waste, fraud, and abuse. Congress has steadfastly refused to implement the auditors’ recommended reforms to save taxpayer dollars.
• The U.S. Treasury cannot account for $17 billion that was spent in 2001.
• The federal government still runs many of the same outdated and obsolete programs from the 1800s and early 1900s, such as the Geological Survey and the Rural Utilities Service.
• Out of thousands of federal programs, only one notable program has been eliminated since President Bush took office (the 2002 termination of HUD’s drug elimination grants for low-income housing).

The 2004 Budget Debate

Will the Budget Deficit Fix Itself?

• Balanced budgets from 1998 through 2001 resulted from: 1) the highest tax revenues in decades; 2) the lowest defense spending in decades; and 3) legislative gridlock that doomed most new spending initiatives. None of these factors exist today.
• Absent reform, budget deficits will remain around $500 billion through the decade. At that point, the retiring baby boomers will collide with Social Security and Medicare to produce a sea of red ink.
• Recent tax rate reductions increased incentives to work, save, and invest and will consequently promote economic growth and produce new tax revenues. However, it is unrealistic to assume these supply-side tax revenues will close a $500 billion budget deficit. Serious spending cuts must be made.

The 2004 Outlook

Battle Over Differing Spending Measures
The White House and Congressional leaders claim that passage of the omnibus spending bill will raise 2004 discretionary spending by 3 percent (from $849 billion to $873 billion). However, a recent series of accounting gimmicks have rendered those budget authority numbers to be useless and misleading. Budget outlays--the actual amount spent, and the amount taxpayers must pay--will grow by 9 percent in 2004 (from $824 billion to $900 billion).

2004 Appropriations

• President Bush is likely to propose a 4 percent discretionary spending increase. In the past, Congress has treated the President’s budget as a floor rather than a ceiling and passed spending bills that were substantially more expensive.
• Discretionary spending has increased 39 percent since 2001. Do these agencies need yet another spending increase next year?

Major 2004 Authorizations

• Highway/Mass Transit: Current bill would spend $375 billion over six years, a 72 percent increase.
• Special Education: Current bill would increase spending to $24 billion by 2008, a 151 percent increase.
• TANF: Current bill would not expand funding substantially, except for child care.
• Head Start: Current bill would not expand funding substantially.
• Workforce Investment Act: Current bill would not expand funding substantially.
• Higher Education: Costs to be determined as legislative process continues.

Other 2004 Spending Initiatives

• Moon/Mars: Approximately $500 billion over the next 20-30 years.
• Energy: Approximately $31 billion over ten years.
• Bioshield: As much as $2 billion per year when implemented.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.