The following is an excerpt from our short course entitled “What Could Governments Do for Us?”
In this post, we discuss issues related to making budgetary choices.
Previous posts dealt with issues related to taxation and borrowing and governmental capacity to get things done.
The Constitution assigns Congress the powers to raise revenues, spend, and borrow. The executive branch, under the president, is assigned the obligation to carry out the budgets adopted by Congress and signed into law. Congress, however, has gradually delegated some of its budgetary powers to the Executive Office of the President, with the balance of power periodically shifting one way or the other. (See our short courses on the presidency – Part 4 – and on Congress.)
Together, these two branches of government are often confronted with difficult choices, especially when faced with economic depressions, global petroleum crises, financial crises, global pandemics, aging populations, or unsustainable borrowing. Which revenue policies and spending programs are likely to help the economy grow faster, which are inflationary, which are socially and politically important but could be made more efficient, and which are no longer needed, questionable, or unsustainable?
Note: Much remains beyond the reach of even the most competent governments. For example, weather and natural disasters often impact production, trade, prices, and employment.
Federal Spending Shares, FY2024
Source: Gross expenditures, https://www.govinfo.gov
Suppose you are faced with the challenge of reducing interest payments as a share of federal spending.
Interest payments will continue to grow unless revenues are increased or spending is reduced.
Suppose you prefer to reduce spending, and Congress will support any decisions you make.
What would you cut?
The figure above shows what the biggest candidates for spending cuts were in FY2024:
- The Department of Health and Human Services spent 25% of the budget, including the popular Medicaid and Medicare programs.
- The Social Security Administration was 22% of the total – would you reduce benefits or restrict who may receive them?
- The Department of Defense spent 12% of the total. Can you find ways to reduce spending without reducing our defensive capabilities?
- The Treasury Department was 9% of the total. It performs several functions essential to any government: it collects taxes through the Internal Revenue Service, handles government payments, and manages government debt. It also advises on economic policy and manages several financial assistance programs.
- The Department of Veteran Affairs spent 5% of the total. Would you reduce benefits or restrict who may receive them?
- The Department of Agriculture was 3% of the total. Its programs support farmers, ranchers, small business owners, and rural/under-served communities.
These six agencies and interest payments ate up 88% of the budget, with roughly 150 other agencies in the remaining 12%.
There is another complication: some spending is mandatory, meaning the laws require such spending.
Examples include interest payments, Social Security, Medicare and Medicaid, the Supplemental Nutritional Assistance Program, and veteran’s benefits.
Discretionary spending is less than a third of the budget. And almost half of discretionary spending in 2023 was for defense.
Making policy choices is not easy work. The Congressional Budget Office does, however, help Congress explore these relationships and policy options.
The U.S. Treasury and the Office of Management and Budget do the same for the president.
2. You can try your hand at making some spending and revenue choices in various simulation games.
One example that allows trade-offs between policies that do and do not help the economy grow comes from the Hoover Institute.
Another example comes from the Bipartisan Policy Center. It lacks the growth linkages but has more revenue and spending choices.
If you want to dig deeper, the posts coming over the next several weeks will offer descriptions of key budgetary functions common to many governments. In many cases, links have been provided to allow you to make comparisons across countries.
To see the full short course, click on the blue link “What Can Governments Do for Us?“
We offer several other short courses on the U.S. system of government. You can find them here: https://cffad.org/topics/
