This report examines the composition of federal government spending and employment, exploring the potential for reductions in both mandatory and discretionary spending. It analyzes the political factors influencing these decisions and highlights the challenges associated with significant cuts to popular programs like Social Security and Medicare.
The next administration and Congress will take office in January, and one of the numerous policy changes under discussion is reducing federal spending. This report delves into the composition of federal government spending and employment. We also discuss how the political process affects changes in these areas. The federal government spent $6.8 trillion in fiscal year 2024, with mandatory spending accounting for roughly $4.1 trillion.
Mandatory spending, determined by eligibility requirements like age or income, is largely automatic year to year. Social Security spending totaled $1.4 trillion in FY 2024, while Medicare added another $900 billion. Other key mandatory spending programs include Medicaid ($600 billion), certain veteran benefits and retirement benefits for civilian employees and military members ($200 billion). Reductions in mandatory spending are possible, but we are skeptical they will occur at a major scale given the enduring popularity of many programs, notably Social Security and Medicare. Zeroing out the $950 billion in interest payments on the national debt is unrealistic unless the government defaults. The remaining $1.8 trillion of spending is discretionary, funded through annual appropriations. Defense spending represented nearly half of total discretionary spending in FY 2024, amounting to 3.0% of GDP - roughly a post-Cold War low. Major reductions in what Congress allocates to the Pentagon seem unlikely in today's geopolitical environment. Nondefense discretionary spending includes a variety of government operations and services often associated with the federal government
FEDERAL SPENDING MANDATORY SPENDING DISCREETIONARY SPENDING DEFENSE SPENDING POLITICS
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