Economic Find: The People’s Guide to the Federal Budget

Understanding the federal government’s annual budget is an important but difficult task, to say the least. Fortunately for anyone trying to understand the federal budget and influence how our country spends its funds, our neighbor here in Western Mass, the National Priorities Project (NPP), has written The People’s Guide to the Federal Budget, which is an extraordinarily useful and clear overview of a very complex subject. The chart below is just one dimension highlighted in the guide, which illuminates historical patterns in federal spending.

Prior to the 1930s, federal expenditures did not play a substantial role in the economy. Around 1933, they rose significantly from the Roosevelt’s New Deal response to the Great Depression. The most significant increases came during World War II, during which federal outlays reached 44 percent of the GDP. The next peak wasn’t until 1983 during the Reagan administration’s military build-up. During the 1990s, federal spending as a percentage of GDP declined and by the end of the decade, federal spending fell to levels not seen in 35 years.

More recently, federal outlays have increased due to increases in military spending, health care costs, an aging population (collecting Social Security) and—due to the country’s recent economic woes—a greater demand for supports like unemployment compensation and food stamps.

According to NPP, 60% of the federal budget comes from income taxes and payroll deductions (for Medicare and Social Security). “As stakeholders, it is our right and our obligation to see that our tax dollars are spent in ways that truly reflect our priorities. To do that we need to know where that money is going, and how budget decisions are made. We need to be smart about the federal budget.”

For more on the basics of the Federal Budget, like where the money comes from, the difference between mandatory and discretionary spending, and the process by which the government creates a budget, check out the People’s Guide to the Federal Budget.






Created by Member Economist Sue Holmberg

October 2011