The Spending Nobody's Talking About:  Interest and Non-War Related Discretionary Outlays
October 18, 2004

The Congressional Budget Office (CBO) projects that the fastest growing major categories of federal spending in 2005 will be defense and war-related outlays (12.2 percent) and interest on the public debt (11.9 percent).

Surprisingly, entitlement spending is projected to be the slowest growing major category of spending in 2005 (4.2 percent).  Discretionary (non-entitlement) spending is projected to grow by 8.7 percent next year.  After subtracting defense, homeland security, and all spending associated with Iraq-related supplemental appropriations, the remaining non-war related discretionary spending is projected to grow by 4.6 percent.

Most people are well aware of the coming crisis in entitlement spending.  After 2010, the cost of Medicare, Social Security, and (probably) Medicaid will soar as 77 million baby boomers surge onto the entitlement rolls.

However, people are probably unaware of what is expected to drive the rapid growth of federal spending next year.

Table 1 (below) shows the major categories of spending:  entitlements, interest, defense and war-related discretionary spending, and other discretionary spending.

Total federal spending is projected to grow by 6.5 percent in fiscal year 2005.  Outside of defense related spending, the fastest growing category is interest on the public debt (11.9 percent).  "Other" discretionary spending is projected to grow by 4.6 percent.  Entitlement spending is projected to grow at a relatively benign 4.2 percent rate.

Interest spending is projected to continue growing rapidly in 2006 (22 percent) and 2007 (18 percent).  Beginning in 2006, entitlement spending will surge with the expansion of Medicare drug benefits. 

CBO projects that the growth of defense and security spending will fall to a very slow pace beginning in 2006, but that forecast will depend largely on the situation in Iraq.


Table 1.

Federal Outlays in Billions
			2004-2005
	2004	2005	Percent Change
Entitlements and Interest
Entitlements	1,247	1,299	4.2%
Interest on Public Debt	159	178	11.9%
Total, Entitlements and Interest	1,405	1,477	5.1%
Discretionary
Defense, Homeland Security, Iraq Supplementals	478	536	12.2%
Other Discretionary	410	429	4.6%
Total, Discretionary	888	965	8.7%
Total Outlays	2,293	2,442	6.5%
Sources: Congressional Budget Office (CBO), September 2004; unpublished data from CBO and Congressional Budget Committees.
Note: Items may not sum to totals due to rounding.

Link:
Congressional Budget Office The Economic and Budget Outlook:  An Update (September 2004)