In fiscal year 2012, the federal government spent almost $3.6 trillion, and about one-third of that amount was for "discretionary" programs. These programs cover a large number of government activities — everything from national defense to the FBI, highways, national parks, maintenance of the U.S. Capitol, and the National Academy of Sciences. Indeed most of the things that people consider to be federal government activities are funded through discretionary programs.
Discretionary spending funds a wide range of government programs
SOURCE: Data from the Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, January 2012. Compiled by PGPF.
This part of the budget is called "discretionary" because each year the Congress must vote on, and the president must sign, appropriation bills that provide funding for these programs. By contrast, no annual votes are required to fund so-called "mandatory" programs, the largest of which are Social Security and Medicare. Funding for these programs is on auto-pilot unless policymakers change the law. Spending on these programs is scheduled to grow as the population ages and the cost of health care increases.
Unlike mandatory spending, which is growing as a share of all federal spending, discretionary spending is declining as a share of the federal budget. Under current law, the Congressional Budget Office (CBO) projected that discretionary spending will grow by about $200 billion over the next decade. By contrast, mandatory spending will grow by an estimated $1.5 trillion over the same period. Because discretionary spending contributes so little to future spending growth, policymakers seeking to control our long-term debts will need to look beyond discretionary spending, and focus on the core drivers of our structural deficits — the health and retirement programs whose costs will soar as the baby boomers retire and health costs continue to grow, and a tax system that does not bring in enough revenue.
DISCRETIONARY SPENDING AND RECENT EFFORTS TO REDUCE THE DEFICIT
Discretionary spending has been a favorite target of policymakers concerned with cutting the deficit and reigning in debt growth. The latest example is the Budget Control Act of 2011 (BCA), which imposed caps that will cut about $760 billion in budgetary resources between 2012 and 2021.
The BCA also created the Joint Select Committee on Deficit Reduction, widely referred to as the "Supercommittee." The Supercommittee was a bipartisan, bicameral committee charged with developing a budget package that would reduce deficits by an additional $1.5 trillion over the ten years. Because the Supercommittee failed to reach agreement by its November 2011 deadline, the law now requires further reductions in spending at the beginning of 2013. These cuts, achieved through reductions in spending caps and a process known as sequestration, will fall heavily on discretionary spending and most heavily on discretionary defense spending. These cuts will push discretionary spending to a historically low level.
Because of these BCA provisions, discretionary spending is projected to decline from 8.3 percent of gross domestic product (GDP) in 2012 to an estimated 5.6 percent of GDP in 2022. At that level, discretionary spending will be lower than its lowest level in more than 40 years — and well below its average of about 8.7 percent of GDP between 1970 and 2011. These numbers raise serious questions about whether reducing discretionary spending to such a low level, almost 36 percent below its historical average, is either desirable or feasible.
To be sure, those low numbers assume that policymakers allow all of the automatic cuts to take place. But even if the cuts are overridden by Congress, discretionary spending will still only be about 6 percent of GDP in 2022, which is 30 percent below the 40-year average of discretionary spending.
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