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Jane G. Gravelle discusses patterns of federal spending and taxes and compares different approaches to debt reduction.

Addressing a federal budget deficit that is unsustainable over the long run involves choices about providing public goods, making transfers, supporting state and local governments, and raising taxes. A start on addressing the federal budget deficit has been adopted in the Budget Control Act (P.L. 112-25) and the future growth in debt is also relevant to considering expiring tax cuts.

A small share of federal spending is for direct provision of domestic government services, which many people may think of when considering federal spending. Since this spending is normally about 10% of total federal spending and about 2% of GDP and deficits excluding interest are projected to be as much as 6.6% of GDP by 2035, cutting this type of spending can make only a limited contribution. Transfers and payments to persons and state and local governments constitute most of federal spending, about 70%. Defense spending, currently accounting for about 20% of spending, has declined over the past 35 years, but also tends to vary depending, in part, on the presence and magnitude of international conflicts.

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