Facts & Figures

It can seem daunting to grasp some of the problems facing the nation’s finances, especially when government spending is in the trillions, but the core concepts are actually pretty simple to understand. Here, we break down the basic numbers and percentages and put them in context, drawing upon the data and resources of our partners, as well as invaluable sources like the Congressional Budget Office, the Government Accountability Office, and the White House Office of Management and Budget.

Where the Government Gets its Money and How it Spends it

First and foremost to understanding the federal budget is having a sense of how the government takes in money and what it spends it on. This graph shows the basic sources of tax revenues that the government draws in to bring in revenues.

Revenue sources by source in billions, fiscal year 2006

Revenue sources: Note: Social insurance and retirement receipts include Social Security and Medicare taxes and unemployment insurance. Other includes estate and gift taxes and customs and duties fees.

Source: Budget of the United States Government, 2008

As you can see:

• The largest portion (43%) of the income that the government brings in comes in the form of personal income taxes that individuals pay.
  
• Taxes paid by individuals and by employers, specifically to support the Social Security system, account for about 35% of tax revenues.
  
• Taxes on business corporations bring in another 15%.
  
• Smaller taxes, including sales taxes and the like, account for the rest of the government’s revenues (about 7%).

Turning to how the government spends its money, we find:

Federal outlays by function in billions, fiscal year 2006

Note: Federal outlays totaled $2.7 trillion in fiscal year 2006, which includes the subtraction of $68.3 billion (or -2.6%) in "undistributed offsetting receipts," which are collections deducted from outlays rather than added to receipts.

Source: Budget of the United States Government, 2008

Here we see that:

• Social Security, Medicare and Medicaid (the so-called “entitlement” or mandatory programs) make up about 40% of government expenditures.
• Defense spending accounted for another 20% or so.
• And domestic "discretionary” spending on all sorts of programs such as building and maintaining roads, national parks and federal student loans, make up about 16%.

Mandatory and Discretionary Spending

This brings us to another key concept in the debate. There are essentially two kinds of federal programs, mandatory and discretionary. Mandatory programs, as the name implies, are benefits the government is obligated by law to provide. Social Security, Medicare and Medicaid are all mandatory programs, also known as entitlements, because when you reach a certain age or drop below a certain income level, you’re entitled to them. These benefits are set by specific formulas, so they’re essentially on autopilot.

Discretionary programs account for almost everything else in the federal budget, from the Pentagon to the post office, education to transportation, national parks to national defense.

Mandatory vs. discretionary spending in billions, fiscal year 2006

Source: Budget of the United States Government, fiscal year 2008

As you can see, mandatory spending accounts for well more than half of the federal budget. It's important to keep in mind that the mandatory slice of the pie doesn't account for Social Security and Medicare only, though those entitlements do account for the largest portion of it. All of our federal spending programs have some mandatory spending built in--certainly some more than others. However, unlike entitlement programs, Congress must decide each year how much to spend on these programs.

And entitlements aren’t just the largest part of the federal budget, they’re also the fastest-growing programs, as Americans have increasingly, over time, come to depend on them. Compare spending on entitlements today, to spending in 1970:

Entitlements spending in billions, fiscal years 1970 and 2006

Note: Federal outlays totaled $195.6 billion in 1970 and $2.66 trillion in 2006.

Source: Budget of the United States Government, fiscal year 2008

Clearly, that's a dramatic increase, but even more so is the projection that entitlements could double in the next decade--further complicated by the 78 million baby boomers expected to retire. Yet because entitlements are so popular and running on autopilot, there’s very little incentive for Congress to face up to the tough decisions needed to control the budget. Needless to say, this complicates our long-term fiscal problems tremendously.

The Long-Term Challenge

In 2006, the federal deficit amounted to $248 billion, while we have accrued a national debt of about $8.6 trillion, which is a staggering amount of money, even for a nation as large as ours. Already, we are paying $227 billion, or 9 percent of the total budget, in interest on the national debt. Of course, it’s hard to know what such big numbers really mean. But it is possible to get a sense of such an impact by looking at how they're projected to affect us.

Deficit projections in billions, for fiscal years 2007-2017

Source: Congressional Budget Office and the Concord Coalition

As indicated by the orange line above, the Congressional Budget Office projects a surplus by the year 2012, a figure that takes certain provisions into account. To that effect, it's critical to keep in mind, when looking at this graph, what conditions and budget plans the CBO uses to calculate various fiscal outlooks. Their projection of a 2012 surplus takes into account the expiration date of President Bush’s tax cuts in 2010 as well as corporate tax breaks.

Under the President's 2008 budgetary proposals, however, those tax cuts would remain permanent. Other requests include an increase in military spending, and cutbacks on federal health care spending under Medicaid and Medicare and several other domestic programs. Based on the provision that these policies are adopted as-is, with no other legislation affecting spending or revnues, the CBO has calculated the coordinate values, indicated by the blue line, at a slight deficit by 2012.

The Concord Coalition Plausible Baseline shows a drastically different outlook, indicated by the red line, which assumes that discretionary spending grows at the rate of GDP, military operations are gradually scaled back, and President Bush's expiring tax provisions are extended.