Wiggle room in the federal budget
Date posted: January 31, 2011
Many people want to balance the federal budget by focusing on reducing government spending. How easy is that? N.C. State University economist Mike Walden weighs in.
“In thinking about this, it is useful to divide the federal budget into three parts: One we call mandatory spending, and primarily this is spending on three big programs: Social Security, Medicare, Medicaid. That takes 60 percent of the federal budget. It is very hard to change that spending. It is almost like it is on automatic pilot, because you actually have to get in and change the rules of who is eligible and how much they get in terms of pensions and medical care.
“Another big part of the federal budget is national defense — about 21 percent of the federal budget. And of course, many people — many people — don’t agree about national defense, but many say that should not be touched because of our security needs.
“So that leaves only 20 percent of the budget for what is called non-defense discretionary spending — which amounts to about $600 billion dollars a year. That is going to fund everything from transportation to homeland security to education. The problem is … if you cut all of that — just took all of that out $600 billion dollars — that’s half the budget deficit.
“So this really shows how difficult it is to balance the federal budget — get it to zero deficit. What is obviously much more likely is that you put the federal budget on a trend toward reducing the deficit, but not necessarily getting rid of the deficit all at once.”
Category: Economic Perspective