(UWIRE) The United States government is in the midst of a budget crisis. The federal government has run a deficit â€” it has spent more than it collected in tax revenues â€” in all but four fiscal years since 1969, but recent deficits have reached unsustainable levels. In 2009, the government spent $1.4 trillion more than it raised, the largest nominal deficit in history and the largest as a percentage of GDP since the end of World War II in 1945.Â
The Congressional Budget Office projects that the fiscal year 2010 deficit of $1.56 trillion, which represents 10.6 percent of GDP, will be greater still.Â
And things are getting worse.Â Mandatory spending on entitlement programs like Social Security and Medicare is projected to grow to 44 percent of GDP by 2080, which is to say nothing of discretionary spending.
Why does this matter?Â For one thing, deficits imply that the government must borrow money, which raises interest rates and reduces private sector investment and long-term growth. Foreign governments that finance much of the public debt gain diplomatic leverage over the United States.Â
In the long run, these and other creditors may stop loaning to the U.S. government, either for political reasons or because they consider it a bad credit risk, which could render the government unable to fulfill basic functions. Debt incurred to finance social welfare programs for todayâ€™s citizens will have to be paid off by future taxpayers.
Overcoming these problems will require decisive, painful choices by the federal government.Â As Erskine Bowles, co-chair of President Obamaâ€™s deficit and debt commission, explained, economic growth wonâ€™t raise the revenues needed to overcome this problem.
To achieve a sustainable budget, he explains, the government must â€œcut spending or increase revenuesâ€ or some combination of the two.Â And unless Americans will consent to paying much higher taxes, some spending cuts are going to have to occur.
For citizens to hold their leaders accountable for the tough decisions that have to be made in the near future, they must understand the major items in the federal budget itself, how we got into this mess and what our options are going forward.
Despite public criticism of â€œpork barrelâ€ spending and foreign aid, these categories constitute a miniscule portion of the budget.
Of greatest concern are the major entitlements: Social Security, Medicare and Medicaid.Â
Spending on these programs is expected to skyrocket for demographic reasons. The impending Social Security crisis can be avoided if Congress can muster the political will, but thereâ€™s obvious solution as to limiting the growth of public health care spending.Â
While the military budget is not growing nearly as rapidly as spending on entitlements, it represents nearly a fifth of total federal spending and is a perennial target of deficit hawks.Â But while some wasteful defense spending can be cut, more fundamental cuts will entail a sacrifice of military capabilities.
Smaller but not insignificant budget items include spending on transportation, primarily the interstate highway system, and education.
A major contributor to the current deficit is the 2009 American Recovery and Reinvestment Act, which has sought unsuccessfully to mitigate the effects of the current economic crisis through tax breaks and spending initiatives.Â
While the federal government maintains a series of safety net entitlements and tax incentives for the benefit of the poor, evidence indicates that the system may be inadequate for the poorest of the poor.
Few would deny that major budgetary overhaul is needed, but there is bound to be debate about exactly how to achieve fiscal sustainability.
We hope this discussion of the major areas of federal spending will cause our remands to demand action of our elected representatives.
Eva Lam and Peyton Miller are Co-editors of the Harvard Political Review. Letters and feedback can be sent to firstname.lastname@example.org.