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Wednesday, March 05, 2008

What Caused the Increase in Federal Spending During the Bush Administration?

There is a persistent myth that the increase in federal spending during the Bush administration is due, in large part, to an increase in spending on domestic programs. But the increase in federal spending is mostly due to changes in defense expenditures, and not all of the increase is war related:

Federal Spending, 2001 through 2008: Defense Is a Rapidly Growing Share of the Budget, While Domestic Appropriations Have Shrunk, by Richard Kogan, CBPP: ...Some may think the President’s recent attempts to squeeze domestic appropriations are being made in response to an explosion of domestic discretionary funding during his Administration... But this is not correct: there has been no such funding explosion for domestic discretionary programs. Between fiscal year 2001 ... and fiscal year 2008, funding for domestic discretionary programs has ... shrunk both as a share of the budget and as a share of the economy. In contrast, appropriations for defense and other security-related programs have increased more rapidly than any other area of the budget — even more rapidly than the costs of the “big three” entitlement programs: Social Security, Medicare, and Medicaid.

Findings Our findings are set forth in three tables. Each table divides the federal budget among four program areas: 1) defense, veterans, homeland security, and international affairs (i.e., defense and security programs); 2) the “big three” entitlement programs: Social Security, Medicare, and Medicaid; 3) all other mandatory or entitlement spending; and 4) domestic non-entitlement, or “discretionary,” programs. ....  (See the Appendix for a description of the accounting used in this analysis.).

Table 1 divides the budget pie into its four components ... and shows each area as a share of the total.  The table reveals that defense and related programs have grown from less than 22 percent of the non-interest budget to more than 29 percent in just seven years. ... The most significant reduction occurred among domestic discretionary programs...

Cbppt1

Table 2 compares the growth rates of the four areas of the budget. ... This table ... shows: a) the nominal or unadjusted average annual growth rates of the four program areas; b) the growth rates adjusted for inflation; and c) the growth rates adjusted for both inflation and population. We find that:

  • Defense and related programs have grown far faster than any other area of the budget, while domestic discretionary programs have grown at the slowest rates.
  • Taking inflation and population into account, the defense/security category has grown 27 times as rapidly as domestic discretionary programs.
  • The defense/security category also has grown four times as rapidly as all domestic programs combined — a category that includes Social Security, Medicare, Medicaid, the other entitlements, and the domestic discretionary programs.
Cbppt2

Cbppb1

Table 3 shows the four areas of the budget as a share of the economy — i.e., as a percentage of Gross Domestic Product...

Cbppt3

As Table 3 shows, while non-interest expenditures as a whole have grown noticeably faster than the economy, domestic discretionary programs have grown more slowly than the economy (and thus have shrunk as a share of GDP). ...

In contrast, funding for defense and related programs has been growing at an extraordinary rate.  Funding for these programs has shot up by 2 percent of GDP in just seven years. To put this in perspective, it is expected to take more than two decades, from 2010 to the mid-2030s, for Social Security to grow by two percent of GDP...

Tremendous Increases in Parts of the Defense Budget Unrelated to Iraq and Afghanistan ...Even excluding the costs of the wars in Iraq and Afghanistan and the global war on terror, funding for defense and related programs has grown at an average annual rate of 4.8 percent per year since 2001, after adjusting for inflation — substantially faster than the growth in Social Security, Medicare, and Medicaid. ...

Conclusion Despite rhetoric to the contrary, domestic discretionary programs have not been growing rapidly.  In fact, this is the only part of the budget where costs have been shrinking relative to the economy, which means these programs are not putting upward pressure on revenues.

By contrast, funding for defense and related areas has been growing far faster than any other part of the budget, much faster in fact than Social Security, Medicare, and Medicaid. Moreover, defense remains the fastest growing area of the budget even if one excludes the costs of the wars in Iraq and Afghanistan and the global war on terror. ...

    Posted by on Wednesday, March 5, 2008 at 12:23 AM in Budget Deficit, Economics | Permalink  TrackBack (0)  Comments (53)

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