Federal Spending

Federal spending is more than $2 trillion a year and makes up more than half of total government spending in the United States. The federal government now accounts for 20% of the total US gross domestic product (GDP), but this was not always the case.

Historical Patterns in Federal Spending

Gross Domestic Product is one way of talking about the size of an economy and can be measured by adding up all of the spending by individuals, businesses, and government along with the value of products exported to foreign countries, while subtracting all of the products imported from other countries.

In the 1920s, the federal government spent less than $40 billion in today's dollars. This was only around 3% of the GDP. The government did not play much of a role in the economy through spending, though it did through other means, for example, by giving land to railroad companies, and setting low mining fees on public land (to encourage mining).

Federal spending increased significantly during the New Deal which started in 1933, but the real increases came with World War II. In 1944, outlays reached an all time high of 44% of the GDP (see chart below). Outside of World War II, the peak of federal spending was in 1983 during the Reagan military build-up. During the 1990s, federal spending did not keep pace with the expansion in the economy, or population growth, so federal spending fell. By the end of the decade, federal spending was at a low not seen for almost 35 years. More recently, federal spending has increased due to significant increases in military spending, rising health care costs, and more people retiring and collecting Social Security.

Today's Federal Spending

Today, federal spending accounts for more than 20% of GDP. About one-third of that spending, $818 billion in FY2005, is devoted to Social Security and Medicare - programs aimed at senior citizens, the disabled and children and spouses of deceased workers (see chart below).

Spending on 'national defense' (a government definition) amounts to 20% of total federal spending. This does not include, however, foreign military financing grants, other military assistance, or other military-related expenditures.

The high deficits in the 1980s accelerated the accumulation of federal debt. Servicing this debt now consumes approximately 7% of spending, or about $180 billion. This amount would actually be much higher - around $270 billion - except that it is off-set by interest earned on the Social Security trust funds.

The federal government contributes very little to education, contributing only about 8% of total spending (local, state and federal) on elementary and secondary education. Total education spending, including higher education, consumes less than 3% of the federal budget.

Other includes general science, space and technology; energy; agriculture; commerce and housing credit; community and regional development; general government; allowances; and undistributed offsetting receipts.

Sources: Office of Management and Budget, Budget of the U.S. Government, FY2006, Historical Tables and Mid-Session Review [1].