The myth of rising domestic spending strikes again!

I happen to love Kevin Drum’s blog, so I hope he takes this as a helpful correction. In a post yesterday, he echoed the very important point from the Center on Budget and Policy Priorities that there hasn’t been an “explosion of government’s size,” but rather that over the last few decades, health costs and demographics have driven primary (i.e., non-interest) spending trends. But then he went on and veered toward an issue very near and dear to my heart: domestic spending. Quote:

“Assuming I did my sums properly, federal spending on ‘everything else’ — that is, everything except Social Security, Medicare, and interest on the debt — has indeed gone down from 15.2% of GDP in 1962 to a projected 11.3% of GDP in 2017. (That’s from Table 3.1 here.) However, the national defense piece of that has declined from 9.2% to 2.9%, while the nondefense piece has increased from 6.0% to 8.4%. There are some arguments to be had about whether the defense piece of the budget is calculated correctly (it doesn’t include veterans benefits, for example), and it’s worth noting that healthcare costs are part of the nondefense picture too (mostly due to rising Medicaid expenditures). Still, the basic shape of the river doesn’t change much. Most of the downward slope in spending is due to lower defense spending. Domestic nondefense spending hasn’t gone up a lot, but it has gone up.

Actually, the shape of the river changes pretty significantly if you take Medicaid, veterans benefits, and other security spending (i.e., homeland security, international affairs, and nuclear weapons security, which oddly enough is embedded in the Department of Energy) out of the domestic spending category. Throw Medicaid in with Medicare and Social Security (all part of the “health care costs and demographics” thesis) and include veterans benefits and other security spending in with the defense budget, and you get a very different picture. Yes, defense/security fell from nearly 11 percent of GDP in 1962 to 5.7 percent in 1979, but guess where it’s at now? About 6 percent of GDP. Domestic spending climbed from a little more than 4 percent in 1962 to about 7.7 percent in the late ’70s, but over the last few decades it’s actually fallen: Before the recession, domestic spending had actually declined to under 5 percent. It’s risen a bit because of the recession (e.g., more people qualifying for food stamps and unemployment insurance) and the Recovery Act, but by 2017 it is projected to fall to a near 40-year low.

In other words, there was a story to tell of defense/security spending falling and domestic spending rising, but all that happened before 1980.  Since then, defense/security went up a bit during President Reagan’s Cold War build-up, down in the aftermath of the Soviet Union’s dissolution, and up again post-9/11 (wars aren’t cheap).  As for domestic spending?  It’s been pretty flat.

  • Benleet

    International comparison can be found at the Tax Policy Center:
    Of 33 OECD countries, only 3 tax less than the US. Other countries pay for health care through taxation, and have much cheaper overall health care expenses. But they do not have enormous defense expenditures. Since 2000 defense spending is up 50%. Since 1980 the top one percent of households have increased their share of the personal income, post-taxes and post-transfers, from 8% to 17%, per CBO report, and simultaneously have had marginal income taxes dropped from 70% to 35%. There’s about $1 trillion annually that once went to the lower 80% of households that now goes to the top one percent. Without equitable income and wealth distribution it’s unlikely the economy will recover, ever, in my opinion. The projection above in the graph is optimistic. 

  • Gerry Fitzgerald

    Your analysis is worthwhile in revealing that much of what has been called non-defense spending is for the Medicaid entitlement for the poor and domestic aspects of national security (presumaby mostly DHS).  But, as a Democrat on your side of most issues, I must say it is very misleading to call your “all-else” category “domestic spending”, as if it were all domestic spending. 

    Medicaid is clearly “domestic spending” as well as “welfare spending” and therefore its present and expanding costs affecting income taxes are unpopular (to say the least) among most conservatives.  Medicaid is being expanded under the Affordable Healthcare law (“Obamacare”) to give free healthcare to lower-inome Americans who are not considered to be “poor”, according to federal Census guidelines. We Democrats generally support Medicaid and its expansion under the new healthcare law, but we should not try to hide the fact that Medicaid is our most costly welfare program and it accounts for much of the increase in Domestic spending and in welfare spending for the poor.

    I suspect you also included in your redefinition of domestic spending the non-security aspects of homeland security that are necessary even without security concerns. For example, all aspects of passports and immigration enforcement, now under DHS, as well as the FBI have long been considered part of domestic spending.

    • I see two comments criticizing my usage of “domestic spending”. Fair critiques. To be honest, it’s really hard to accurately characterize certain buckets of spending in a couple words–technically, it’s non-health, non-retiree (except for government retirees, which are included), and non-security spending. But I tried to be transparent enough about the definition in the text and graph so that calling it “domestic spending” wouldn’t be misleading.
      As for the DHS stuff, it’s all in the security definition, consistent with the official definition of security in the Budget Control Act. Trust me, there’s enough in the domestic spending category that should be security (environmental clean-up from defense activities, for example) that it’s probably a wash anyway.

  • Joe Kennedy

    You might think from the title of this blog that domestic spending is no higher than it was in the past, at least in real terms.  You would be wrong.

    The trick lies in clever wording and definitions.  The title of the blog refers to the “myth” that domestic spending has not been rising.  The author then omits most of domestic spending from his definition to get at a much lower number.  He justifies this omission because this increased spending is due to health care costs and demographics!  Unfortunately, even then his calculations show that spending rises.  It does, however, hold roughly steady as a share of GDP, especially if you include improbably estimates of discretionary spending.