Given that, does “a billion here, a billion there” still amount to “real money?” The answer is unequivocally “yes,” and President Trump’s administration is committed to demonstrating that.
The federal budget in less than one page
To understand why, we first need to understand the federal budget in a bit more detail. There are three big areas of the $7 trillion in federal spending:
Mandatory spending – these are programs such as Medicare, Medicaid, and Social Security. Some people collectively refer to these as “entitlements” – commitments the federal government has made to cover health and retirement benefits for older Americans and less fortunate Americans. Today, we spend approximately $4 trillion in this bucket.
Interest payments on the debt – we have to “service” our $36 trillion debt, or pay people interest for the privilege of lending us that money. Today, the U.S. spends approximately $1 trillion in this bucket.
Discretionary spending – this is the catch-all bucket for everything else. It includes lots of stuff, but a few of the big items are: (i) the roughly 2.4 million non-military federal employees (e.g., IRS, Commerce, Interior, and a whole hosts of other federal agencies); (ii) Defense-related personnel and other spending; and (iii) Veterans Affairs. Today, we spend approximately $2 trillion in this bucket.
Luckily (or not, depending on your view of taxes), the federal government also collects some money each year, the vast majority of which comes in the form of tax payments that you and I pay. The government collects about $5 trillion today, leaving us $2 trillion in the hole.Lots of people may debate the size of the debt, how much is too much and what are the longer-term implications. But one thing is clear: a growing debt means you must pay interest payments each year to satisfy your lenders. That’s “dead money,” meaning we’re paying lots of interest without getting anything of value in return.