The federal budget includes a vast array of programs. But when boiled down, there are just five basic spending activities: compensating federal workers, purchasing goods and services, giving aid to state governments, transferring wealth through subsidy and benefit programs, and paying interest on the debt.
The Bureau of Economic Analysis publishes detailed tables on federal spending. They say that the government spent $3.9 trillion in 2013, which is more than the understated $3.5 trillion figure published by both the White House and the Congressional Budget Office.
Here’s how the spending breaks down:
- Transfers were the largest activity at $2 trillion, or 51 percent of total spending. Some of the largest transfer programs are Social Security, Medicare, food stamps, and unemployment insurance.
- Purchases were $571 billion, or 15 percent of spending. The government buys everything from fighter jets to paper clips.
- Aid to the states was $510 billion, or 13 percent of spending. It is delivered through more than 1,100 programs for health care, highways, education, and other things. Medicaid is the largest state aid program.
- Interest was $414 billion, or 11 percent of spending.
- Compensation (wages and benefits) for 3.7 million defense and nondefense workers was $407 billion, or 10 percent of spending.
Total federal spending increased from 18.8 percent of gross domestic product in 2000 to 23.1 percent by 2013. During that period, transfers grew at an annual average rate of 6.7 percent, which compared to purchases at 6.0 percent, compensation at 5.5 percent, and state aid at 5.0 percent. By contrast, inflation averaged just 2.4 percent during the period.
Many policymakers are in denial about the government’s huge fiscal problems. But projections show ever‐rising spending and debt in coming decades, which could seriously undermine economic growth and reduce our living standards. So we need to change course and make cuts in every spending activity.