Imagine this cake is the federal budget. This huge section of the cake represents mandatory spending and is automatically set aside when the budget is drafted each year. It pays for programs like social security and medicare, and its amount cannot be altered without changes to federal laws. Fifty years ago mandatory spending accounted for only around 25% of the federal budget, while today – due to an aging population – it is closer to 60%.
This area here represents the amount the government is required to pay in interest on the national debt. For 45 of the last 50 years the federal government has ran a budget deficit. That means that they borrow more money than they bring in through taxes. Just like when you carry a balance on your credit card, the government has to pay interest on the money it borrows from countries like China.
What remains of the cake is what is called discretionary spending. This is the only portion of the federal budget that the president and congress can decide how to spend. With this money the government invests in areas like education, transportation, social welfare and national defense.
As the country’s debt piles up, the amount of money our government throws away in interest payments each year goes up with it. This means less money to invest in things like new roads, bridges, and schools. It also means politicians may raise taxes to help pay for the debt. One thing is for certain… too much debt is a bad thing.