Written by the Center on Budget and Policy Priorities
The federal government collects taxes in order to finance various public services. As policymakers and citizens weigh key decisions about revenues and expenditures, it is instructive to examine what the government does with the money it collects.
In fiscal year 2011, the federal government spent $3.6 trillion, amounting to 24 percent of the nation’s Gross Domestic Product (GDP). While the level of 2011 expenditures – as a share of GDP – remains high due to the economic downturn, the composition of the budget largely resembles the patterns of recent years. Of that $3.6 trillion, $2.3 trillion was financed by federal tax revenues. The remaining $1.3 trillion was financed by borrowing; this deficit will ultimately be paid for by future taxpayers. (See box for the recession’s impact on the budget.) As shown in the graph below, three major areas of spending each make up about one-fifth of the budget:
Two other categories together account for another fifth of federal spending:
As the graph shows, the remaining fifth of federal spending goes to support a wide variety of other public services. These include providing health care and other benefits to veterans and retirement benefits to retired federal employees, assuring safe food and drugs, protecting the environment, and investing in education, scientific and medical research, and basic infrastructure such as roads, bridges, and airports. A very small slice of this remaining 19 percent – about 1 percent of the total budget – goes to non-security programs that operate internationally, including programs that provide humanitarian aid.
While critics often decry “government spending,” it is important to look beyond the rhetoric and determine whether the actual public services that government provides are valuable. To the extent that such services are worth paying for, the only way to do so is ultimately with tax revenue. Consequently, when thinking about the costs that taxes impose, it is essential to balance those costs against the benefits the nation receives from public services.
We based our estimates of spending in fiscal year 2011 on the most recent historical data released by the Office of Management and Budget (OMB). (The federal fiscal year 2011 runs from October 1, 2010 to September 30, 2011.)
The broad expenditure categories presented in this paper were constructed on the basis of classifications commonly used by budget agencies. The categories are constructed by grouping related programs and activities into broad functions, which are further broken down into subfunctions. The details of how the categories used in this paper were constructed from those functions and subfunctions are described below.
Defense and International security assistance: The largest component of this category is the national defense function (050). In addition, this category includes the international security assistance subfunction (152) of the international affairs function.
Social Security: This category consists of all expenditures in the Social Security function (650), including benefits and administrative costs.
Medicare, Medicaid, and CHIP: This category consists of the Medicare function (570), including benefits, administrative costs, and premiums, as well as the “Grants to States for Medicaid” account and the “Children’s health insurance fund” account (both in function 550).
Safety net programs: This category of programs includes all programs in the income security function (600) except those that fall in the following two subfunctions: federal employees’ retirement and disability (602) and general retirement and disability insurance (601). The latter contains the Pension Benefit Guarantee Corporation and also covers programs that provide pension and disability benefits to certain small groups of private sector workers.
Interest on debt: This category contains the net interest function (900).
Everything else: This category includes all federal expenditures not included in one of the five categories defined above. The subcomponents of this category that are displayed in the graph are defined as follows:
This post was originally published by the Center on Budget and Policy Priorities.
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