To operate the federal government, the United States must borrow money by selling several types of debt instruments, or securities, to the general public. Funds are raised by selling securities, such as Treasury Bills, United States Saving Bonds, Notes and Bonds. These debt instruments are also backed by the full faith and guarantee of the federal government and are typically purchased by individuals, states, corporations and foreign governments. The debt is repaid by the federal government with interest.
Function
The government must borrow money to provide for national defense, health care, education, building infrastructure and other services and activities. The monetary outlays greatly exceed the amount of revenue the government receives. The money owned by the government makes up what is known as the national debt.
The national debt is a combination of the debt obligations owed to the public and government trust funds. Government trust funds, like Social Security, invest in U.S. government securities with the money it has left over after meeting its obligations to Social Security recipients. Following are the largest categories of spending that requires the government to borrow lots of money.
Nondefense Discretionary
A significant portion of the money borrowed by government is allocated toward the category called "nondefense discretionary spending." In 2007, 29 percent of the budget, or $782.4 billion, was spent in this area. It generally includes many of the programs that were developed as part of the President Franklin D. Roosevelt administration's New Deal Initiative. This safety net for many Americans was implemented after the Great Depression of 1929 and included programs in the following areas: housing, agriculture, retirement, disability, education and transportation.
Defense
Approximately 21 percent of annual outlay is for national defense, according to the United States Treasury. This totaled $586.1 billion dollars in 2007. Typically, the government has to borrow money to finance wars and other defense programs, like the global War on Terror and Homeland Security needs. The funds are spent on items such as retirement pay, active military personnel, international operations, research and development and operations and maintenance.
Medicare
The Medicare program consumes about 14 percent of the money spent by Uncle Sam on an annual basis. It is a health insurance program that mostly covers people 65 years and older. Certain other beneficiaries are also covered under the program. Medicare issues benefits under 4-parts: A,B,C and D.
Part A pays for a portion of inpatient hospital services, hospice care, nursing facilities and certain home health services. Many beneficiaries under Part B must pay a premium. This part addresses doctors and outpatient care. It also compensates for some services like occupational and physical therapy. Health care providers, such as PPOs and HMOs, are paid for providing medical insurance under part C, while part D deals with prescription plans through the private market.
Interest on Debt
Another item that necessitates the United States to borrow money is the interest that must be paid on the national debt. The interest on debt payment was $237.1 billion in 2007. Interest payments must be made on financial instruments such as U.S. Treasury notes and bonds, savings bonds and the State and Local Government Series (SLGS) securities program, issued to finance pass and current military excursions, fund domestic programs and finance other needs. This category equals about 9 percent of annual outlays.
Medicaid
Medicaid is the health care program that provides for low-income persons and families. Over $196.6 billion of the federal budget was spent on this program for fiscal year 2007. The funding is administered by the states where the eligibility guidelines and type of health care services that can be rendered are determined. The funding, which is about 7 percent of annual expenditures, is paid on the behalf of the system users directly to health care providers.
