How federal government spends

Can we make cost savings to ‘balance’ the federal budget?

Yes we can (we can do anything we have the political will to do) and we should try to find savings wherever we can. The deficit in fiscal 2019 was $2,995 per U.S. resident and demographic trends will increase Social Security and Medicare costs over time – Crunchicrant estimates we need to find savings of $3,500 per person per year to get the federal budget to “sustainable”.

This is what the federal US government spent in fiscal 2019 (using the $ per US person measure):

(Note that the government distinguishes between discretionary expenses (outlays which congress approves each year); and mandatory expenses (outlays which are required under laws passed at some point in the past). These latter can be changed, but require that the laws which require the expenditure are revisited and changed – a much heavier legislative ‘lift’).

There are three broad approaches to balancing the budget by cost cutting: (all three in some measure could be taken, but useful to look at the three groups of costs, separately).

1. Cut the big social programs – Social Security, Medicare, Medicaid: Total of $6,360 spent (in 2019) per US person
   • Issues:
     • Social Security and Medicare
       • Americans have, through their working lives, been sold the line that payroll taxes they have paid (from $1 of their earnings) are being set aside to fund an implicit retirement promise.
       • 40% of retiring Americans have no meaningful provision for their old age, other than Social Security and Medicare
     • Medicaid
       • 20% of Americans depend on Medicaid for their health insurance
2. Cut defense: Total of $2,059 spent (in 2019) per US resident person
   • Issues:
     • The deficit exceeds the entire defense budget, though defense is certainly a large line item where a significant saving could be made.
     • A material saving would first require a re-think of what our security priorities are: it is not impossible that when we do this we will want to increase spending on our security – certainly security against pandemic risks have been found wanting.
3. Cut ‘other’ – everything but ‘big social’/defense – expense categories: Total of $3,976 ($2,014 (discretionary) plus $1,962 (mandatory)) spent (in 2019) per US resident person
   • Issues:
     • There are dozens of expense lines in this category, none of which, by themselves, add up to much.
     • Larger single expense lines include:
       • Retirement obligations to government employees (Civilian and Military)
       • Obligations to Vets (the VA)
       • Transportation (infrastructure): an area which arguably needs much more spent having been badly neglected in the last 30 years
       • Administration of Justice: federal courts and prisons, the FBI, TSA, ICE, DEA, ATF
       • The State Department – arguably the most cost effective of all our national security spends
       • Expenditures to advance science – especially funding of primary research/ NASA
       • Health – the National Institutes of Health and the Centers for Disease Control
       • Federal poverty programs, including income support and food aid.
     • There are, under this category, amounts spent which could, arguably, be moved to states: items like education and housing – moving obligations should not count as a cost saving.

There is one final category of expense (Interest on government debt – $1,142 per US person person): nothing we can do about that. A category that will likely grow the longer it takes us to achieve a rational and sustainable budget.

A final but important point: every adjustment to spend impacts:

• The persons receiving the federal spend
• The families and communities in which that person lives and spends

To allow all the stakeholders in any decisions to cut expenditure to adjust, time is needed: early decisions and phase in of the change create time.