The Federal Budget: It's Not That Complicated

Apr 14, 2011

If you can understand the federal budget from what you see and hear from newscasters and soundbites from our legislators, you’re more astute than I. So take matters into your own hands: go straight to the source, and you’ll be amazed by what you can learn. The “source” is the Congressional Budget Office, a reliable, nonpartisan treasure trove of data. Sometimes it takes a little work – the CBO folks are not schooled in the rules of quantation – but it’s all there!

Let’s start with government spending (our “outlays”) for fiscal 2010 (that’s the 12 months ended Sept. 30, 2010), the most recent year for historical data. Here’s a summary of where your tax dollars, plus a few dollars we borrowed, went:

This is everything those guys spent in FY ’10 – the total is a mind-numbing $3,466 billion (or, for you big-picture folks, $3.5 trillion) The pie wedges show the major spending categories, but also note the color-coding into three main groupings:
  • “Discretionary” spending (bluish wedges) – this is money that every year Congress can, through the appropriations process, choose to spend or not spend.
  • “Mandatory” spending (yellowish wedges) – this money the government must spend, by law. And as we can all see, passing new laws or changing existing ones to alter this spending is very, very challenging.
  • Interest (pink wedge) – like any other borrower, Uncle Sam must pay the interest on his debt. The factors driving this number are (a) the amount of debt the U.S. government owes and (b) current interest rates. Here’s your main takeaway: In today’s legislative climate, Congress has no direct control over more than 60% of federal government spending (i.e., Mandatory Spending plus Interest). In fact, given the 2010 deficit of $1,294 billion, we could have cut out 97% of Discretionary Spending (i.e., Defense plus Non-Defense) and still run a deficit! Yow!

I hope you’ve found this post understandable and useful. In future posts, we’ll take a look at this information in a little more detail, at the offsetting receipts (i.e., taxes), and at how all this looks over time.

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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