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Grasping the Big Bad Budget

Tuesday March 11th, 2014   •   Posted by Craig Eyermann at 7:33pm PDT   •  

wh_2015_budget_0We said before that President Obama’s proposed budget for the federal government in its 2015 fiscal year was big and bad, but John Merlin writing at Investors Business Daily describes just how big and bad federal spending has grown:

Buried deep in a section of President Obama’s budget, released this week, is an eye-opening fact: This year, 70% of all the money the federal government spends will be in the form of direct payments to individuals, an all-time high.

In effect, the government has become primarily a massive money-transfer machine, taking $2.6 trillion from some and handing it back out to others. These government transfers now account for 15% of GDP, another all-time high. In 1991, direct payments accounted for less than half the budget and 10% of GDP.

What’s more, the cost of these direct payments is exploding. Even after adjusting for inflation, they’ve shot up 29% under Obama.

The section of the budget in which this particular data is tucked away is Table 6.1 of the budget’s historical tables, which describes the composition of federal spending from 1940 through 2013, with the White House’s forecasts through 2019.

We made the following chart showing each of the major categories’ inflation-adjusted spending covering all the data.


What we find is that in real terms, increasing payments to individuals, through welfare programs like Social Security, Medicare, Medicaid, Obamacare, food stamps, and countless others has been the driving factor behind the inflation-adjusted exponential growth of federal spending. Far more than spending for national defense, which if anything, has mostly flatlined by comparison since the early 1950s.

But what’s really unsettling is that the full bill for all the money the federal government has been borrowing to sustain that spending will begin coming due after this year, as President Obama indicates that the net interest that the U.S. federal government must pay to its creditors will begin rising sharply.

The reason why is because the President anticipates that the interest rates that the government must pay to its creditors after that time will also begin rising at that time. And since the federal government has racked up so much debt under his watch, without any meaningful reduction in spending, the federal government will not be able to avoid having to roll over its debt and effectively re-borrow the money it has previously borrowed, but at higher interest rates.

And the dynamics are such that net interest on the national debt will soon become the fastest growing category of federal spending. Not to mention President Obama’s enduring legacy.

Featured Image:
White House

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March 2014