The Myth-Busting Economist by Larry Malone

Some Truths about Federal Spending

Since the dawn of the New Year, our federal government has been under siege. Master Elon Musk is leading his DOGE Wiz Kids to supposedly root out corruption and fraud, save American taxpayers $2 trillion, and slash the federal payroll. That’s a big lift, since he’s also “protecting” our personal information and past tax returns from other potential predators. If all goes according to plan, Musk is expected to shrink what we send to Uncle Sam in payroll taxes by April 15th each year. And that nudge of a few extra dollars will return America to greatness.

Were things really so bad that we needed Musk to rescue us, diverting his attention from taking a handful of space travelers to Mars?

To answer, let’s start by laying out the basics of the federal government budget. Like any budget, it consists of receipts and expenses.

In 2023, the federal government took in total receipts of $5,036 billion (a shade over $5 trillion). About 40 percent of receipts came from income taxes, 13 percent from corporate taxes, and 31 percent from Social Security and Medicare payroll taxes. The remaining 7 percent of receipts came from a variety of sources, including such things as excise taxes, estate taxes, customs duties (tariffs), and national park entry fees.

Total expenditures for 2023 were $6,883 billion, or about $6.9 trillion, and were divided into two types: mandatory and discretionary. Mandatory expenses must be paid each year under long established federal law. Discretionary expenses are authorized by Congress and the president annually.

Mandatory expenses accounted for 61 percent of all expenses in 2023. The top three mandatory expenses, and their percentage of total government expenses, were Social Security (21 percent), Medicare (12 percent), and Medicaid (8 percent). Those three alone made up 41 percent of all federal government expenses. Smaller categories of mandatory expenses made up another 19 percent of total federal government expenses.

Discretionary, or non-mandatory expenses, were about 29 percent of the federal budget in 2023. Discretionary expenses are divided into two main categories: spending for national defense, which was $885 billion (about 13 percent of total federal spending), and non-defense (about 15 percent of total federal spending).

Non-defense discretionary spending, just 15 percent of all spending, includes most of the departments of the federal government. During the first weeks of his efforts, this was the spending that Musk and his DOGE minions targeted for scrutiny.

And this is the spending that many of us benefit from: school meal programs, GI Bill benefits and Veterans Affairs, FEMA, college work study, prisons, roads, highways, ports and airports. The list goes on and on—air traffic control, customs and immigration, the National Park Service, the CDC and National Institutes of Health, NASA, the Postal Service, TSA and Homeland Security, and the FBI. There’s also the Justice Department, which tries, convicts and sentences felons who violate our laws.

I realize that tossing in so many numbers makes it difficult to keep track of them all. But a few readers who enjoy numbers might have noticed that adding total mandatory spending (60 percent) to total discretionary spending (29 percent) results in the number 89. So where is the remaining 11 percent of spending by the federal government?

The answer is that in 2023, the federal government made $659 billion in interest payments to those owning shares of our national debt, which ended up being 11 percent of all of federal government spending. The national debt holders owned (and possibly redeemed) savings bonds or treasury bills. Banks and corporations, domestic and foreign, are the biggest owners of debt instruments, along with retirement and pension funds. All of that debt is the result of past spending that did not have offsetting revenues (taxes, etc.) to pay for it.

The bottom line is this: Unless you radically change Social Security, Medicare, or Medicaid, all of which would require legislative action and the signature of a president, there are only two real choices to reduce spending. The first is to prune (fire people) or eliminate programs that make up just 15 percent of total government spending. But those programs are what give us a better quality of life. The second is to slash spending for national defense, which makes up 13 percent of all spending. There is a third option, but no one has the spine to vote for it—raise taxes, on something (corporations), some groups (the rich?) or all of us.

Meanwhile, folks in wealthy countries all over the world are enjoying more greatness provided by their federal governments. The average German citizen, for example, is afforded government subsidized health insurance, public higher education that costs $500.00 in fees per year, 14 weeks of maternity leave at 65 percent pay, and five weeks of paid vacation with another nine public holidays each year. Germans can also drive 150 mph on the Autobahn or take high-speed trains to hundreds of destinations on a 20,000 mile federal railway network. And if a German is feeling a bit ill, most prescription medications are available over-the-counter at the pharmacy. Best yet, the average German will live to the age of 82.2 years, while the average American will have already been dead for almost three years.

So don’t be fooled when you see a social media post or news item boasting of “dramatic savings” or fraud. It won’t go far in making your life better in any meaningful way.

Larry Malone is professor emeritus of economics at Hartwick College.