Spending

The U.S. Federal Budget for 2016 is roughly $3.8 trillion which will be spent on a range of things from roads, to Senator’s salaries, to food stamps, to guns. It is one of the single largest allocations of capital in the world each year.

The money for the Budget comes mainly from federal taxes, which generated about $3.2trillion for 2016. The Budget deficit is currently over $500 billion and is covered by borrowing money from international lenders. Of the total 2015 Budget about 28% was spent on Health and Human Services; 25% on Social Security; 16% on the Military; 4% each on Veterans, Transportation, and Food and Agriculture; 3% on Education; 2% on the State Department and Foreign Aid; 1% each on Housing and Urban Development, Energy and the Environmental Protection Agency, Science and NASA, and Labor. The remaining 9% paid for operation of the Branches of Government and various Departments. The 2016 Budget has increased over 2015 and the percentages will be somewhat different by the end of the year.

Each year the Budget allocates money in two ways. Mandatory spending is the first way and covers programs that have already been approved like Social Security and Medicaid. Discretionary spending is the second kind and deals with spending that must be approved each year in the Budget Bill which is passed by Congress and covers things like Education and most Military and Transportation spending. The most recent Budget Bill was negotiated in October 2015 with details finalized in December, and it approved spending through September 2016.

Recently, the Budget Bill has become a political bargaining chip with Congress refusing to pass or delaying passage if it contains funding for programs they disapprove of. This strategy has led to several Federal Government shutdowns, most recently in 2013, when the previous Budget ran out and a new Budget was not passed in time to continue funding operation of the Government. Constant partisan disagreements between the Democratic President and the Republican controlled Congress on spending, healthcare, and other issues has resulted in difficult Budget negotiations; Budgets have been relatively short term and the possibility of shutdowns has been frequent. Past shutdowns resulted in the closures of Government offices and National Parks, the interruption of services, negative economic impacts, inconvenience for citizens, and lost or delayed pay for Federal workers. Fortunately, during past shutdowns the Federal Government continued to make payments on its loans. If a future Budget crisis leads to a longer or more large-scale shutdown then it’s possible that the Federal Government will default before the Budget is passed. This almost occurred during the most recent budget battle but a deal was reached and a Budget was passed just in time in late 2015. If the U.S. Government defaults on its loans it could have catastrophic economic effects worldwide. The next Budget negotiations are set for mid to late 2016 and the President and Republican Congressional leaders have expressed a desire to move past partisan disagreements and pass a longer term Budget. If they succeed they will create more stability in Federal programs and eliminate the looming threat of shutdowns, but if they fail it could be disastrous for the U.S. and the entire global economy.