What Are We Getting for an Extra $1 Trillion in Federal Spending?
Few commentators bother to look back three years and compare federal spending in 2007 with that of 2010. Remarkably, Washington spends $1 trillion more a year now than it did a mere three years ago. Here are the numbers from the Office of Management and Budget website (I include the 2004 figures for context):
2004 -- Revenues: $1.88 trillion. Spending: $2.29 trillion. Deficit: $412 billion
2007 -- Revenues: $2.56 trillion. Spending: $2.72 trillion. Deficit: $160 billion
2010 -- Revenues: $2.16 trillion. Spending: $3.72 trillion. Deficit: $1.3 trillion
In the three years from 2007 to 2010, federal spending jumped almost exactly $1 trillion, or 36.7%.
Here are the deficits of the past three years and the estimated shortfalls for fiscal years 2011 and 2012:
2008: $0.5 trillion
2009: $1.4 trillion
2010: $1.3 trillion
2011: $1.5 trillion (est.)
2012: $1.6 trillion (est.)
Total: $6.26 trillion in five years
Publicly Held Debt Jumped 80%
And this isn't even the real total being added to the national debt because "supplemental appropriations" for war costs and other large expenditures are "off-budget" and not included in the "official" federal deficit. The same is also true of funds appropriated to bail out mortgage giants Freddie Mac and Fannie Mae and other financial institutions.
Gross debt increased by $1 trillion in fiscal year 2008, $1.9 trillion in 2009 and $1.7 trillion in 2010 -- considerably higher than the "official" deficit numbers. Debt held by the public, which includes Treasury bonds owned by the central banks of China, Japan and other countries, jumped 80% from $5 trillion in 2007 to $9 trillion in 2010.
As I reported on DailyFinance in January, these additional trillions in debt will eventually trigger unwelcome consequences for the nation.
It's sobering to realize that federal spending has leaped $1.5 trillion -- a staggering 60% -- in just six years, from 2004 to 2010, and $1 trillion --36% -- just since 2007. Though the Great Recession officially ended in mid-2009, federal deficits just keep going up.
Meanwhile, the U.S. economy has been treading water. In inflation-adjusted dollars, U.S. GDP in 2010 was almost precisely the same as it was in 2007: $13.363 trillion in 2007 and $13.382 trillion in 2010.
An Opaque Tangle
So what is America getting for this extra $1 trillion in federal spending a year?
I'd like to report a straightforward answer, but the truth is the budget is an opaque tangle of questionable estimates, off-budget expenditures and numbers that have been sliced and diced in so many different ways that it's essentially impossible to sort out what we're actually getting for this extraordinary outlay of tax revenues and borrowed money.
For example, one of the best graphics depicting the entire federal budget (prepared by The New York Times) includes the Department of Energy in its calculation of the Defense budget because Energy handles the production and research and development of America's nuclear weapons. Other sources leave Energy as a stand-alone agency.
Still, if we cut through the thicket of often-conflicting statistics, we can assemble some basic answers.
No Help From the Great Recession
First, let's factor in inflation from 2007 to 2010: According to the Bureau of Labor Statistics, that accounts for 5% of any change. So, $50 billion of that $1 trillion a year can be attributed to inflation.
In 2007, SNAP cost around $30 billion. In 2010, that rose to $68 billion as the number of people receiving SNAP benefits rose by 15.6 million people, or 57%, to 43.2 million in October 2010. So, costs rose $38 billion in those three years.
The cost of continuing unemployment extensions is estimated at $65 billion. According to The New York Times graphic, total unemployment program costs in 2010 were $158 billion.
So together, these two recession-related programs cost about $100 billion more a year.
The $787 billion stimulus package passed by Congress in 2009, the American Recovery and Reinvestment Act of 2009, is being spent over several years: $154 billion in 2009, $353 billion in 2010, $232 billion in 2011 and the remainder over 2012 and beyond.
$650 Billion Still Unaccounted For
Roughly speaking, that averages to about $250 billion for each of the recession years, but it doesn't affect the 2012 federal spending plan much.
So where is the $1 trillion a year going? Around $350 billion a year can be attributed to recession-caused spending: extended unemployment, SNAP and the stimulus package.
That still leaves $650 billion unaccounted for, and it doesn't address the 2012 budget, which isn't much influenced by the little remaining stimulus spending.
According to the sources listed above, the following major federal programs saw significant increases between 2007 and 2010:
Medicaid -- 2007: $276 billion. 2010: $293 billion (+17 billion).
Medicare -- 2007: $395 billion. 2010: $462 billion (+67 billion).
Social Security -- 2007: $586 billion. 2010: $724 billion (+138 billion).
Defense -- 2007: $548 billion. 2010: $663 billion (+115 billion). Other sources list $699 billion in 2007 and $738 billion in 2010.
These increases in the federal government's biggest four programs come to $337 billion.
TARP and Total Interest Aren't the Culprit
The other recession-related cost is the Troubled Asset Relief Program (TARP), the $700 billion bailout of Wall Street and banks, which expired last year. As noted above, the ongoing costs to bail out Fannie Mae and Freddie Mac, as well as other financial institutions, is off-budget and thus the tens of billions of losses being funded by taxpayers isn't even included in these official budget figures.
The Congressional Budget Office estimated last summer that the final cost of TARP to taxpayers had fallen to around $66 billion because many banks had repaid their government loans. Divided over 2008, 2009 and 2010, that would account for roughly $22 billion per year.
How about interest on the national debt? The interest paid on external (non-intergovernmental) debt has declined from $189 billion in 2009 to $164 billion 2010 as interest rates have fallen to historic lows, so that's not the cause of higher spending.
The recession-related costs and the growth of the four major federal programs come to about $710 billion. Factor in the increase attributed to inflation, and the total rises to about $750 billion.
The other $250 billion of the $1 trillion increase from 2007 to 2010 is spread over the dozens of other federal agencies and programs.
What We Could Get for $1 Trillion
What's troubling about the 2012 federal budget is that it remains $1 trillion higher than budgets just a few years ago, but the recession-related spending on TARP and the stimulus will be history.
So, back to our original question: What are we getting for $1 trillion in additional spending?
One way to grasp how enormous is this sum is to imagine what else it could pay for. It could have paid off all of the $830 billion of outstanding student loans in the U.S., for instance, and left $170 billion to spend -- about the size of Ireland's entire GDP, or enough to fund the Veterans Administration ($122 billion) and the Department of Transportation ($43 billion), combined.
Instead, all we're getting for our $1 trillion in additional spending and $1.5 trillion in additional debt in 2012 is a continuation of the status quo.