Because of the global financial crisis, U.S. government spending is up sharply, including over a trillion dollars allocated to stabilize the financial system and for the stimulus package intended to create millions of jobs and get the economy back on its feet. The U.S. government is expected to spend at least $3.5 trillion in 2009. That is about one-quarter of the nation’s economy. But how do we know if it will be wisely spent?

Nearly two-thirds of federal government spending is “mandatory” — for entitlement programs such as Medicare, Social Security, and Medicaid, as well as interest on the national debt — that is, determined by law, not congressional appropriations. The other 37 percent of the federal budget is spent on “discretionary” programs, with more than half of that (21 percent) going to defense. The Congress votes on twelve appropriations bills each year to fund thousands of government initiatives – from the State Department and federal law enforcement to education and the environment.

Everyone's heard stories of the government wasting taxpayer money: on “pork barrel” spending, programs that don’t work, or cost overruns on defense and other federal contracts. However, “pork” (also known as "earmarks") -- when members of Congress add spending bills for pet projects to an existing piece of legislation -- accounts for just one percent of the budget. In addition, while we could do a much better job curtailing government waste, similar problems exist in the private sector. Waste is infuriating, but budget experts generally agree it's not the cause of the government's budget problems.

The government pays for this spending through a variety of types of revenue. Income taxes are the largest source of revenue, but “payroll” taxes (what most people think of as Social Security taxes) are a close second, and most taxpayers pay more in payroll taxes than in income taxes. Business taxes, excise taxes, tariffs, and income from government activities also contribute to federal revenue.

The U.S. government has a long history of budget deficits, which are covered by borrowing. In 2009, given that deficits are projected to be $1.2 trillion to $1.6 trillion, this borrowing through the sale of Treasury securities (and “intra-governmental” borrowing from sources such as the Social Security Trust Fund) will be enormous. The biggest long-term problem is not the deficits caused by the current financial crisis, but rather those that will result from rapidly rising spending for Medicare and Social Security. To close that long-term shortfall of tens of trillions of dollars, the nation must reform and curtail spending and/or increase revenues through taxes or other means.

We must figure out how to provide Social Security (and, more generally, income security) as well as quality, affordable health care to Americans of all ages, today and in the future, while paying for other important, discretionary government programs.

In addition, the government could do a better job regulating parts of business and financial sectors, as the current financial crisis has made evident. If such regulations had been in place, the government might not have had to be spending hundreds of billions of dollars of taxpayer money on the current bailouts.

We also need to recognize that some federal monies are well spent, and may be good investments in our nation’s future, and deficits are sometimes necessary (e.g., to help Americans weather difficult times), while other federal monies are poorly spent. Government spending also can be necessary to simulate the economy in hard times.

Nonetheless, we, as a nation, need to stop regularly spending more than our government receives in taxpayer dollars, borrowing money to pay for government programs, bailing out large financial firms and businesses, and promising unfunded benefits to future generations. Our national debt and unfunded liabilities total more than $53 trillion, and are growing by several trillion dollars per year. Bringing federal debt under control will mean making tough choices, such as cutting programs, raising taxes, and imposing rules on how federal funds are spent. But people will only be able to make such hard choices if they trust their leaders to act responsibly, so that their sacrifices are not wasted.

To help you think through the best ways to do this, we describe several different approaches:

• Strengthen and Expand Systems to Encourage Responsible Spending
• Make it Easier for Americans to See How the Government Spends its Money and What Programs Work
• Remove Temptation: Change the Incentives for How Our Leaders Spend Our Money

Through your deliberations on these choices, it will be helpful to keep several questions in mind: Which approaches would lead to more responsible management of the nation’s finances? Why? Are there other measures that we should be considering, besides those covered in these choices? What do your deliberations suggest that you and your fellow citizens can do to improve the situation?

These alternative sets of approaches are merely intended to be discussion starters. You should not think that you need to adopt every idea under any one approach. You can mix and match ideas from different approaches, and toss in other ideas while considering this question: What do you think are the best courses of action, and why?