Transcription
Hey everybody, welcome back. This lesson is all about money. Congress has the power to purse and establishes an annual budget for the federal government. In 2023, the federal government spent over six trillion dollars—yes, trillion, with a T—a number so massive we have no hope of ever beginning to wrap our heads around it. But either way, spending is divided into two categories: mandatory and discretionary. It's not mandatory, but I'd love if you used your discretion to smash that like button as we start [Music].
Mandatory spending is spending on existing programs and is required by law. So it's not part of Congress's annual budget bill; rather, the spending takes place automatically. About 70 percent of federal spending is mandatory, and that number has been steadily increasing over the past few decades. It includes things like entitlement programs and interest payments on the national debt. Don't sleep on interest payments; since interest rates have been rising since 2022, it's become significantly more expensive to pay back the interest on the debt. In fact, in 2023, the federal government spent 663 billion dollars on interest alone. The government doesn't get anything at all for that money; it's the cost of borrowing money that it already spent. And mandatory spending can only be changed through new legislation, which by now should be clear is a very difficult undertaking.
Entitlement programs provide benefits to people who qualify based on legislation. Think of things like Social Security, Medicare, and Medicaid. In 2023, according to the CBO, 1.2 trillion dollars was spent on Social Security and another 1.5 trillion or so on Medicare and Medicaid. That's about 45 percent of all federal spending on those three programs alone, and it continues to rise as our population ages and more people qualify for Social Security and Medicare. Listen, I don't know if you need to know this for the test, but we're going to take a moment and define a few of the major entitlement programs.
Social Security provides benefits to a few different groups for a few different reasons but is most prominently an old-age pension program providing benefits to workers once they've retired. It also provides disability and survivors' benefits as well to spouses and children of a deceased person. Medicare is essentially a public health insurance provider for people who are at least 65 years or older, while Medicaid provides health insurance to people below certain income levels. This is probably more detailed than you need, but in Thailand programs can be either means-tested or non-means-tested. Means-tested means that people qualify based on their income, so Medicaid is a means-tested program because people only qualify if their income is less than that limit. Non-means-tested programs provide benefits regardless of a person's income level. For Social Security and Medicare, people qualify based on their age regardless of how much money they have. One other distinction is between monetary benefits and in-kind benefits. Social Security provides monetary benefits, meaning that it sends beneficiaries a check, and people can spend that money however they'd like on whatever they want. Medicare and Medicaid provide in-kind benefits, so these programs will pay for your medical bills, but they don't send the beneficiary money.
Discretionary spending must be approved annually through the normal budget process, and this includes about 30 percent of federal spending. When you hear about Congress and the president fighting over the budget, this is what they're fighting over. Defense is by far the largest portion, making up about half of all discretionary spending. Education and infrastructure spending are also included in this category, and while they're much smaller components of total spending, they receive a lot of attention politically.
Where does all this money come from? Recall that Congress has the power to tax and to borrow money, so those are the two basic options. For nearly every year since 1950, the federal government has spent more money than it brought in through tax revenue, resulting in a budget deficit for the year. For the last several years, they've been running deficits of over a trillion dollars a year, spending much more than the government takes in through tax revenue. Since I suppose technically it's possible, I'll tell you that if Congress ever spent less than it brought in through tax revenue, that would be a budget surplus for the year, but don't hold your breath waiting for that to happen. When I recorded this, the national debt was over 32 and a half trillion dollars, and by the time you watch this, it's even higher. The national debt refers to the total amount of money that the federal government owes to other people. Be sure not—not—to confuse debt and deficit, like so many people do. Deficits are annual; debt is the total. Every year that they run a deficit, it increases the national debt.
One of the consequences of rising entitlement costs is that it decreases discretionary spending opportunities for Congress unless they decide to either increase tax revenue or to borrow more money, increasing the deficit and, in turn, the national debt. By the way, we always say government spending, but remember that it's really taxpayer spending—it's your money; the politicians just get to choose how to spend your money.
Speaking of, there's pork-barrel legislation that provides tangible benefits like jobs, money, and programs to a congressional district and is used by representatives to bring home the pork, so to speak, and to help them win re-election. Sometimes the pork may be just one part of a much larger appropriation bill where Congress provides money for government programs and to help get bills passed. Logrolling, or vote trading, takes place—basically, you vote for mine, I'll vote for yours. One example of this is in an omnibus bill that combines several pieces of unrelated legislation into one bill to secure enough votes for the entire bill to pass.
All right, well, that's a really quick introduction to a really important topic, especially for anybody at all concerned about the future. But until next time, this has been a la money production. Thanks again for watching. I hope you're having a great day, and if you're looking for any test prep help, well, consider checking out the ultimate review packet; I think you'll like it. And I will see you in the next video.