October 31, 2014

A Declining Path for Federal Investment

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

Federal investment totaled $531 billion in 2012, amounting to 15 percent of all federal spending and 3 percent of the gross domestic product, according to a new report by the Congressional Budget Office (CBO).

While such spending has kept up with inflation, it is projected under current law to decline sharply as a share of the economy over the next decade. Given historical levels, the projected declines are likely to prove unrealistic.

Roughly half of federal investments last year went to physical capital such as highways or ships. About $139 billion was spent on research and development, while $128 billion went to education and training.

Federal investment last year fell back to historical norms after 2011 and 2010, when efforts to boost the economy pushed investment spending to 4 percent of GDP.

By 2023 defense investment is projected to be less than half of its average share of GDP from 1962 to 2012. Non-defense investment will be less than two-thirds of its average for that period.

Most investments in 2012 for non-defense, which totaled $318 billion, and defense, which totaled $213 billion, came through discretionary spending that Congress approves on an annual basis. Lawmakers have generally focused deficit-reduction efforts on discretionary spending while ignoring the rest of the budget picture.