Everyone loves the party game/icebreaker “two truths and a lie.”
The COVID-19 pandemic ushered in a period of unprecedented spending as the federal government spent $3.26 trillion in response to the pandemic. Now Democrats are pushing for economic upheaval in the form of a $3.5 trillion budget resolution package without addressing the debt ceiling and the nation looms closer to the danger of defaulting on our debt. Can you identify which of the following is NOT true about how our tax dollars are spent?
A. Through the budgeting process, Congress only controls about a quarter of every dollar spent by the federal government.
B. We spend more on other countries than we do on our own people.
C. Our budget operates in the red because of out-of-control spending.
There are three categories of federal spending: mandatory spending, discretionary spending, and net interest on the debt.
Mandatory spending refers to spending mandated by law that is outside of the congressional budget process. In 2020, mandatory spending was $4.6 trillion – or about 70 percent of all spending. Also called, entitlements, benefits from these programs are required to be paid out by law to eligible recipients.
Social Security, Medicare, and Medicaid dominate mandatory spending, but it also includes other social safety net programs such as the Supplemental Nutrition Assistance Program (SNAP or food stamps), unemployment compensation, and some veterans benefits.
Discretionary spending, or spending that Congress controls through the annual appropriations process, accounts for less than a quarter of all federal spending ($1.6 trillion). Defense is the biggest discretionary expense ($726.2 billion), but funding levels for everything from education and housing to transportation and international affairs is negotiated by Congress each year.
The interest on the national debt is how much the federal government must pay on outstanding public debt each year.
There’s a popular misperception that the United States supports every nation but neglects the needs of its citizens at home. This misperception is false.
We spend just $67.7 billion of discretionary spending on international affairs, which lags behind at least six other spending areas like education, transportation, and justice.
Foreign spending also pales in comparison to mandatory spending programs for the poor and vulnerable in our nation. For example, we paid out $1.1 trillion in Social Security benefits to retirees and the disabled, we spent $776.2 billion on healthcare for elderly and poor Americans, and we gave out $476 billion in aid to Americans including food stamps, unemployment, housing, and cash payments.
Entitlements are not just our biggest expense, but they are intentionally held outside of the annual congressional budget process. This means they are immune from negotiations and partisan fights, but they are also difficult to reform.
Federal spending is out of control and on an unsustainable path driven by mandatory spending. Entitlement programs like Social Security risk becoming insolvent in the near future.
Each year, we spend over $1 trillion more than we receive in revenue leaving an annual deficit. Add up those deficits over time and we have a national debt of almost $27 trillion, or about $82,000 per individual in the U.S. On this path at some point interest payments on our debt will crowd out spending in other areas, and this problem has now only been exacerbated by the numerous COVID-19 relief packages in the last year and a half.
We cannot tax our way out of this hole. Revenues have been rising but are simply not enough to keep pace with federal spending growth, especially mandatory spending.
Some want to just tax the rich, but basic math shows that large tax increases (even as extreme as 100 percent on high-income Americans) cannot close most of the long-term budget deficit.
Policymakers must make reigning in discretionary and reforming mandatory spending a priority. A $3.5 trillion spending will only spur higher inflation, hurting those most in need. Inflation, including soaring food prices, is already skyrocketing with spikes not seen since the Great Recession of 2008. This new package will only accelerate inflation in our country and hurt our most vulnerable populations.
Check out these resources for more on federal spending:
Congressional Budget Office (CBO): The Federal Budget in 2020