What Are We Getting for an Extra $1 Trillion in Federal Spending?

U.S. Capitol building with American flags As every constituency fights to protect its herd of sacred cows, there's certainly no shortage of political jockeying in the battle over the 2012 federal budget. What's missing, however, is this simple question: What exactly are we getting for the extra $1 trillion a year the federal government is now spending?

Few commentators bother to look back three years and compare federal spending in 2007 with that of 2010. Remarkably, Washington spends $1 trillion more a year now than it did a mere three years ago. Here are the numbers from the Office of Management and Budget website (I include the 2004 figures for context):

2004 -- Revenues: $1.88 trillion. Spending: $2.29 trillion. Deficit: $412 billion
2007 -- Revenues: $2.56 trillion. Spending: $2.72 trillion. Deficit: $160 billion
2010 -- Revenues: $2.16 trillion. Spending: $3.72 trillion. Deficit: $1.3 trillion

In the three years from 2007 to 2010, federal spending jumped almost exactly $1 trillion, or 36.7%.

Here are the deficits of the past three years and the estimated shortfalls for fiscal years 2011 and 2012:

2008: $0.5 trillion
2009: $1.4 trillion
2010: $1.3 trillion
2011: $1.5 trillion (est.)
2012: $1.6 trillion (est.)

Total: $6.26 trillion in five years

Publicly Held Debt Jumped 80%


And this isn't even the real total being added to the national debt because "supplemental appropriations" for war costs and other large expenditures are "off-budget" and not included in the "official" federal deficit. The same is also true of funds appropriated to bail out mortgage giants Freddie Mac and Fannie Mae and other financial institutions.

Gross debt increased by $1 trillion in fiscal year 2008, $1.9 trillion in 2009 and $1.7 trillion in 2010 -- considerably higher than the "official" deficit numbers. Debt held by the public, which includes Treasury bonds owned by the central banks of China, Japan and other countries, jumped 80% from $5 trillion in 2007 to $9 trillion in 2010.

As I reported on DailyFinance in January, these additional trillions in debt will eventually trigger unwelcome consequences for the nation.

It's sobering to realize that federal spending has leaped $1.5 trillion -- a staggering 60% -- in just six years, from 2004 to 2010, and $1 trillion --36% -- just since 2007. Though the Great Recession officially ended in mid-2009, federal deficits just keep going up.

Meanwhile, the U.S. economy has been treading water. In inflation-adjusted dollars, U.S. GDP in 2010 was almost precisely the same as it was in 2007: $13.363 trillion in 2007 and $13.382 trillion in 2010.

An Opaque Tangle

So what is America getting for this extra $1 trillion in federal spending a year?

I'd like to report a straightforward answer, but the truth is the budget is an opaque tangle of questionable estimates, off-budget expenditures and numbers that have been sliced and diced in so many different ways that it's essentially impossible to sort out what we're actually getting for this extraordinary outlay of tax revenues and borrowed money.

For example, one of the best graphics depicting the entire federal budget (prepared by The New York Times) includes the Department of Energy in its calculation of the Defense budget because Energy handles the production and research and development of America's nuclear weapons. Other sources leave Energy as a stand-alone agency.

Still, if we cut through the thicket of often-conflicting statistics, we can assemble some basic answers.

No Help From the Great Recession

First, let's factor in inflation from 2007 to 2010: According to the Bureau of Labor Statistics, that accounts for 5% of any change. So, $50 billion of that $1 trillion a year can be attributed to inflation.

Next, let's consider the consequences of the Great Recession: extended unemployment costs and food stamps (now called SNAP, for Supplemental Nutrition Assistance Program).

In 2007, SNAP cost around $30 billion. In 2010, that rose to $68 billion as the number of people receiving SNAP benefits rose by 15.6 million people, or 57%, to 43.2 million in October 2010. So, costs rose $38 billion in those three years.

The cost of continuing unemployment extensions is estimated at $65 billion. According to The New York Times graphic, total unemployment program costs in 2010 were $158 billion.

So together, these two recession-related programs cost about $100 billion more a year.

The $787 billion stimulus package passed by Congress in 2009, the American Recovery and Reinvestment Act of 2009, is being spent over several years: $154 billion in 2009, $353 billion in 2010, $232 billion in 2011 and the remainder over 2012 and beyond.

$650 Billion Still Unaccounted For

Roughly speaking, that averages to about $250 billion for each of the recession years, but it doesn't affect the 2012 federal spending plan much.

So where is the $1 trillion a year going? Around $350 billion a year can be attributed to recession-caused spending: extended unemployment, SNAP and the stimulus package.

That still leaves $650 billion unaccounted for, and it doesn't address the 2012 budget, which isn't much influenced by the little remaining stimulus spending.

According to the sources listed above, the following major federal programs saw significant increases between 2007 and 2010:

Medicaid -- 2007: $276 billion. 2010: $293 billion (+17 billion).
Medicare -- 2007: $395 billion. 2010: $462 billion (+67 billion).
Social Security -- 2007: $586 billion. 2010: $724 billion (+138 billion).
Defense -- 2007: $548 billion. 2010: $663 billion (+115 billion). Other sources list $699 billion in 2007 and $738 billion in 2010.

These increases in the federal government's biggest four programs come to $337 billion.

TARP and Total Interest Aren't the Culprit

The other recession-related cost is the Troubled Asset Relief Program (TARP), the $700 billion bailout of Wall Street and banks, which expired last year. As noted above, the ongoing costs to bail out Fannie Mae and Freddie Mac, as well as other financial institutions, is off-budget and thus the tens of billions of losses being funded by taxpayers isn't even included in these official budget figures.

The Congressional Budget Office estimated last summer that the final cost of TARP to taxpayers had fallen to around $66 billion because many banks had repaid their government loans. Divided over 2008, 2009 and 2010, that would account for roughly $22 billion per year.

How about interest on the national debt? The interest paid on external (non-intergovernmental) debt has declined from $189 billion in 2009 to $164 billion 2010 as interest rates have fallen to historic lows, so that's not the cause of higher spending.

The recession-related costs and the growth of the four major federal programs come to about $710 billion. Factor in the increase attributed to inflation, and the total rises to about $750 billion.

The other $250 billion of the $1 trillion increase from 2007 to 2010 is spread over the dozens of other federal agencies and programs.

What We Could Get for $1 Trillion

What's troubling about the 2012 federal budget is that it remains $1 trillion higher than budgets just a few years ago, but the recession-related spending on TARP and the stimulus will be history.

So, back to our original question: What are we getting for $1 trillion in additional spending?

One way to grasp how enormous is this sum is to imagine what else it could pay for. It could have paid off all of the $830 billion of outstanding student loans in the U.S., for instance, and left $170 billion to spend -- about the size of Ireland's entire GDP, or enough to fund the Veterans Administration ($122 billion) and the Department of Transportation ($43 billion), combined.

Instead, all we're getting for our $1 trillion in additional spending and $1.5 trillion in additional debt in 2012 is a continuation of the status quo.

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ajacquez

One thing that distorts both past and present budget numbers is that Social Security revenue is included as Federal Income. This masked the deficits of passed years as Social Security revenue far exceeded the payouts, thus making the deficit look less than it really was. Now that the Baby Boomers are retiring and getting Social Security, there no longer is this "surplus". (Note: Social Security is not in trouble as it is paying for itself. It is just that the chickens have come to roost as the poiticians have been using this money instead of keeping it secure.)

Another issue is that the Bush administration kept the financing of the Iraq and Afghanistan wars off the books, while Obama has included these dollars. That is why the 2010 deficit looks so much worse than 2004 or 2007.

March 02 2011 at 1:19 PM Report abuse rate up rate down Reply
bhawkes328

WHAT ARE WE GETTING HMMMM A DEEPER DEPRESSION?????

March 01 2011 at 4:21 PM Report abuse rate up rate down Reply
captmccune

While spending has "jumped" by 36.7%, the "jump" in the deficit is more than triple, over 200%.

Capitalism is what we would have if there were no government interference and no economic system in place; we'd have the barter system. Socialism has been tried many times and every time but once with a dictatorship (our Pilgrims tried it in the 1620's, and discovered it does not work). A dictatorship is required as it removes incentives and requires people to work anyway (just like slavery, only the government owns us, not an individual). Most people need to get paid appropriately for ingenuity and hard work, or they will not work, hence the need for the dictatorship.

March 01 2011 at 1:19 PM Report abuse rate up rate down Reply
captmccune

Mr. Smith's math is off a bit, as the "jump", as he calls it, is over triple, or over 200%, not 36.7%. It is the same kind of math the democrats/socialists use to blame everyone else.

Socialism has been tried many times, all but one under a dictator, because it takes away freedoms. (Our Pilgrims tried it in the 1620's before realizing it cannot work.) It has never worked,and never will. What has screwed up Capitalism is too much interference and too much socialism. If there no government telling us how to live and no economic system in place, we would automatically have capitalism, with the bartering system. Is it perfect, no, but it rewards ingenuity and hard work, where socialism punishes both, removing incentives for success, which incentives most of us need. Few people want to work and not get paid appropriately, especially if they get food, housing, and medical care for nothing. Socialism requires a dictator to make people work until the system fails, as it always does.

March 01 2011 at 12:44 PM Report abuse rate up rate down Reply
taxguy527

Here is where the extra $1 trillion is going: to the obama administration's pet projects & constituents, to reward them for their votes, to buy their votes and continued support. It is an unmitigated disaster that will bankrupt our children & grandchildren, without any question. This obama administration should be removed from office for no other reason than their almost complete lack of any fiscal and financial intelligence. This is financial treason.

March 01 2011 at 9:59 AM Report abuse -1 rate up rate down Reply
1 reply to taxguy527's comment
bggdg

The simple answer to the question posed by the article's title is, "MORE GOONERY"!

March 01 2011 at 12:02 PM Report abuse -1 rate up rate down Reply
foxylynx

The Fed is a growing cancer - they print money and the dollar is worth less and everything costs more. Stop the wars, stop giving money to UN and to countries around the world, stop the bailouts, stop nation building, stop the public unions, stop the millions of rules and regs, stop playing favorites to certain business, clamp down on the banks and get this Country moving again in the right direction - it's been generations.

March 01 2011 at 8:38 AM Report abuse rate up rate down Reply
marine1942

Maybe Rev. Wright ??

March 01 2011 at 8:28 AM Report abuse -1 rate up rate down Reply
n2umicro

FEDERAL RESERVE IS AS "FEDERAL" AS FEDERAL EXPRESS. CONSORTIUM OF PRIVATE BANKERS DETERMIND TO KEEP AMERICANS IN PERERTUAL POWERTY AND DEPT.
ALL OF THOSE THAT DARED TO SPEAK OUT OR HAD POWER TO DISMANTLE THIS CRIMINAL ENTERPRISE FOUND UNTIMELY DEMISE ,INCLUDING JFK

March 01 2011 at 7:50 AM Report abuse rate up rate down Reply
Albertmas

That's exactly right. What we're getting is the status quo because it benefits both Washington and Wall Street and keeps us living on borrowed time. Nobody has the nerve to undergo true political and economic reform. Free market capitalism was a privilege that was abused by everyone and the system has crashed. It's not the Great Recession, its the end of an era. What's up next, really nobody knows but buckle your seatbelts because it's unsustainable. Printing money at that rate will eventually catch up with us.

March 01 2011 at 6:19 AM Report abuse +1 rate up rate down Reply
3 replies to Albertmas's comment
ilduce2

This article is total LIB MEDIA garbage......... Obama and the Democrats are doleing out taxpayer dollars directly to their special interest buddies-- Unions, trial lawyers, enviro-terrorists, minority groups including illegal aliens, etc....... This NON-SENSE.......Is making the economy worse, not better......and the hard working middle class is stuck with the bill.......Down with Obama.....Down with Democrats.....and Down with their confederates in crime-- The LIB MEDIA.

March 01 2011 at 6:13 AM Report abuse -1 rate up rate down Reply