Washington’s budget deficit: size and composition issues

If you’re wondering why Washington is running even bigger deficits, one reason is that fiscal policymakers are gradually losing control of their own budgets. The figure below breaks down the combination of government spending since 1962 into discretionary, mandatory and net interest spending.

Considerable expenditure from the annual allocation process has been steadily declining over the last sixty years. In 1962, Congress controlled 67 percent of its budget, but by 1990 that share had dropped to 40 percent, and it now stands at an all-time low of 24 percent in 2021. Meanwhile, compulsory spending on social security, Medicare and other so-called “entitlement” programs rose from 21 percent of the 1962 budget to a maximum of 72 percent in 2021. Spending on these programs is not literally mandatory Congress can actively decide to budget every year. But until that happens, spending on these programs automatically increases each year without a congressional vote or allocation.

The Congressional Budget Office regularly publishes budget approaches that warn of the dire consequences of excessive public debt. The simple fact that the CBO’s list is always high is that an invisible percentage of discretionary spending makes it more difficult for Congress to respond to short-term conditions without ever running large deficits. Is it really any wonder why we have become accustomed to calculating deficits in trillions instead of billions of dollars?

Net interest expenditures, which are actually mandatory to prevent defaults, have been below 10 percent of the government’s debt service budget since 2002. But with interest rates rising due to the Fed’s order to slow inflation, net interest has been projected to exceed 10 percent of the budget again in five years. This will put more pressure on discretionary spending.

One lesson is that past congressmen have been very effective in committing future congresses to commit to extra spending, especially on entitlement programs that make up the vast majority of compulsory spending.

Another lesson is the concept of scale vs. opportunity. Concerns about the growing size of spending and the overall deficit miss an important issue. Equally worrying is that a growing portion of Washington’s budget has been in the autopilot for the past 60 years, and it has begun to crowd the rest fatally. As a result, as entitlements are off the table in the threat of touching the “third railroad of politics,” advocates of revenue discipline are trying to reform and limit a small portion of the overall budget.

Peter T. Calcagno

Peter Calcagno

Peter Calgagno is a professor of economics at Charleston College and director of the Center for Public Choice and Market Process. Public Choice and Public Policy Project Fellow with AIER.

He has been treasurer of the Public Choice Society, a voting member of the AIER, a board member of the Classical Liberals of Carolinas, and a member of the board of the APEE. His fields of study are applied microeconomics, public choice and political economy. He is the author and editor of dozens of journal articles and book chapters Free Capitalism: A Prescription for Economic Prosperity in South Carolina.

Receive notifications of new articles from Peter T. Calcagno and AIER.

Edward J. Lopez

Receive notifications of new articles from Edward J. Lopez and AIER.

Related Articles – Crisis, Monetary Policy, Government, Public Choice and Public Policy

Leave a Reply

Your email address will not be published.