CHAPTER
4
The Long-Term Outlook for Other Federal Spending
In 2007, a little less than one-half of the federal government’s spending went toward programs and purposes other than Medicare, Medicaid, and Social Security and net interest on the public debt. The category of other federal spending includes both discretionary programs (which are funded through the annual appropriation process) and other mandatory programs (which are usually funded according to the underlying statutes that establish eligibility and payment standards). The other mandatory spending category also incorporates certain receipts that the budget records as negative outlays.
The Congressional Budget Office’s long-term budget scenarios reflect two of many possible future paths for other federal spending:
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For 2008 to 2017 under the extended-baseline scenario, CBO used the projections for other federal spending from its 10-year baseline, which assume that mandatory programs operate as they do under current law and funding for discretionary spending grows at the rate of inflation. For 2018, other federal spending under the scenario would be the same share of gross domestic product (7.7 percent) that it is projected to constitute in 2017 under the baseline. For years after 2018, such spending would decline slightly, to 7.6 percent of GDP. |
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Under the alternative fiscal scenario, other federal spending would gradually decline from its level in fiscal year 2007—9.9 percent of GDP—to 9.6 percent of GDP in 2082.1 |
A distinct pattern in the federal budget since 1962 is the diminishing share of spending provided through annual appropriations (see Figure 4-1). As a share of the budget, such spending has fallen from 68 percent in 1962 to 38 percent in fiscal year 2007. Relative to the size of the economy, discretionary spending has declined from 12.6 percent of GDP in 1962 to 7.6 percent in 2007.
Discretionary Spending as a Percentage of Gross Domestic Product
Source: Congressional Budget Office.
As a share of GDP, total discretionary spending peaked at more than 13 percent in 1967, driven by outlays for defense that reached 9.3 percent of GDP at the height of the Vietnam War. Similarly, the trough in discretionary spending that occurred in 1999 and 2000 reflected the bottoming-out of defense expenditures, at 3.0 percent of GDP, in those years. In contrast, nondefense discretionary spending as a share of GDP varied over a narrower range—from 5.2 percent (in 1980) to 3.3 percent (in 1998).
Defense Discretionary Spending
In fiscal year 2007, defense spending totaled 4.0 percent of GDP; under CBO’s baseline assumptions, it would constitute about 3.0 percent of GDP in 2017. Since World War II, defense spending has fluctuated to a significant degree. For example, it increased during the Korean War (averaging 11 percent of GDP from 1950 to 1953), the Vietnam War (averaging 8 percent from 1962 to 1973), and the defense buildup from 1982 to 1986 (averaging 6 percent). It has risen again more recently—from 2001 to the present—to support military operations in Iraq and Afghanistan and other activities related to the war on terrorism. During the intervening periods, defense spending tended to decline as a percentage of GDP. Overall, such spending has averaged about 5 percent of GDP during the past 40 years and about 4 percent of GDP over the past 20 years. (For a discussion of how military operations in Iraq and Afghanistan affect projected spending, see Box 4-1.)
Nondefense Discretionary Spending
Discretionary spending for nondefense activities, such as education grants, housing, highways, and national parks, will total 3.6 percent of GDP in fiscal year 2007; under the assumptions of CBO’s 10-year baseline, it would constitute about 2.8 percent of GDP in 2017, CBO projects. Over the past 40 years, discretionary spending for nondefense activities has generally ranged between 3 percent and 4 percent of GDP. The one exception was the 1975–1981 period, during which nondefense discretionary spending rose to about 5 percent of GDP.
Other mandatory spending (that is, excluding outlays for Social Security, Medicare, and Medicaid) totaled about 2.3 percent of GDP in fiscal year 2007 and is projected to be 2.0 percent in 2017 under 10-year baseline assumptions. Other mandatory spending includes an amalgam of federal programs—including, for example, federal civilian and military retirement benefits, Food Stamps, unemployment compensation, and veterans’ benefits—as well as certain receipts recorded as negative outlays. Those receipts, also known as offsetting receipts, include such payments as contributions for the federal civilian and military retirement programs and payments for drilling rights on the Outer Continental Shelf. Other mandatory spending, after peaking during the mid-1970s to the early 1980s, has moved up and down around a 20-year average of 2.8 percent of GDP (see Figure 4-2).
Mandatory Spending Other Than That for Social Security, Medicare, and Medicaid as a Percentage of Gross Domestic Product
Source: Congressional Budget Office.
In its previous long-term budget projections, CBO included offsetting receipts from Medicare premiums in its calculations of other federal spending. For this long-term outlook, CBO has netted those offsetting receipts for premiums against the outlays for Medicare in order to calculate costs for the Medicare program.
Federal spending on the refundable portions of the earned income tax credit and the child tax credit is not held constant as a percentage of GDP but is instead modeled with the revenue paths described in Chapter 5.
