This article provides a good description of where the federal dollars get spent. It also explains how recessions produce federal budget deficits automatically. Tax revenues fall in recession and transfer payments increase. Economists regard the resulting budget deficit as stabilizing because the recession would be even deeper without the automatic stabilizers. When recession hit in 2000 under the Bush administration, the GOP pushed through very large "temporary" tax cuts which added to the budget deficit that occurs automatically in recession. Increasing the federal budget deficit was regarded as a means to stimulate the economy, and fight recession, when George Bush was the president. It also provided the rationale for a change in tax policy that primarily benefited those with high incomes.
This all changed when Obama was elected. The automatic deficit, produced by recession, was turned into a campaign issue by Republicans. They blamed the deficit on Obama and pulled out their favorite sound bite to use against their enemy. The "tax and spend Democrats" will bankrupt the economy unless we throw the bums out.
Since the automatic stabilizers only moderate recession, and because the Great Recession, produced by the financial crisis was very severe, the administration proposed an additional stimulus package. It consisted of tax cuts and increased spending. Much of the spending went to states and localities that would otherwise have been forced to cut back on vital programs because of falling tax revenues. This gave Republicans the opportunity to scream even louder about rising budget deficits even though the stimulus saved many jobs and kept the economy from sinking even further into recession. Expansionary austerity became their message. Reducing budget deficits, and deregulation would restore business confidence and induce business to invest in the economy.
Expansionary austerity has become the weapon of choice to attack the social safety net programs that the new breed of Republican's have begun to attack. We can afford to cut taxes on the super rich, but we can't afford to fund social security and healthcare. These are some of the major areas of government spending but they are also very popular with the majority of Americans, including those in the Tea Party. Therefore, both parties have pushed the task of cutting back on these programs onto "bipartisan" commissions that don't have to run for office.
Since the GOP has based its political campaign on reducing budget deficits, it has turned its attention to cutting back on federal spending for programs that are insignificant in terms of the overall federal budget, but are not popular with its base. Even if all of the programs they have targeted as wasteful were eliminated it would not make a dent in the federal budget. That does not really matter, however, since the whole point of the attacks is to excite its base and enable the GOP to dress itself up as the fiscally responsible party that can be counted upon to get rid of wasteful government spending on "liberal" programs favored by Democrats.
The take away from this story is that our budget deficits are primarily the result of declining tax revenue due to recession and the extension of the Bush tax cuts. The only serious way to reduce budget deficits is to restore economic growth and increase tax revenues, and to focus attention on where the real spending occurs. The military budget and the rising price of healthcare services, should be the focus of our attention. Everything else is political posturing.
Setting aside political posturing, there is one last major area of government spending that should be reduced. The interest paid on the national debt cannot be allowed to grow to the point where it limits spending on other areas or it leads to large tax increases. That can only be done by focusing our attention on the areas of the budget that really matter.
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