Government Overspending: Examples & Overview

Instructor: Paul Mckinney

Paul has been in higher education for 17 years. He has a master's degree and is earning his PhD in Community College Leadership.

Government overspending happens when federal, state, or local governments spend more money than they take in through tax. This type of overspending can lead to negative consequences for the government and its people.

Definition

Overspending is defined as spending in excess of one's income. Government overspending happens when federal, state, or local governments spend more money on services for the people than they take in through tax revenue. Government overspending leads to deficits and unbalanced budgets.

U.S. Government Overspending

In 2013, the U.S. government will spend $3.7 trillion on government programs. This figure is over budget by $642 billion! The figures below represent the six largest government agencies and the percentage each will spend of the $3.7 trillion:

National Defense: 19%

Social Security: 19%

Interest on Debt: 5%

Medicare: 13%

Health and Human Services: 10%

Treasury: 16%

History of Government Overspending

Governments throughout history have repeated a pattern. First, they establish a currency, then they overspend to pay for wars or popular social programs. They then debase the currency to accommodate overspending until the currency collapses or is revalued. The government of the Roman Empire followed that pattern some 2,000 years ago, and our modern governments are following that same pattern today. The Roman Empire's reckless spending helped lead to its fall. Today, many of the same destructive patterns are in place in many countries around the world.

Deficit vs. Debt

When the government spends more than what is allowed in its annual budget, it has a deficit. For example, the U.S. government does not have any laws that require a balanced budget. Therefore, when the U.S. government has a deficit, it borrows money in the form of treasure bills and bonds. When the U.S. government borrows money, it has a debt that is owed to others. As of 2013, the U.S. government had a debt of $16 trillion. The graph below shows the annual projected amount of U.S. government overspending through 2017.

U.S. Government Overspending

Effects of Government Overspending

Government overspending can be a burden if left unchecked. Below are only a few of the negative effects of government overspending.

  • No Savings: Government overspending represents a negative value of national/state/local savings.
  • Higher Interest Rates: When the government has to borrow money to pay for its overspending, there are fewer lendable dollars left for everyone else. With few dollars available, the interest rates rise.
  • Default: When governments borrow to pay for their overspending, there is a risk that the government will default on its loans. When this happens, the entire economy can crash because people have lost faith in the government.

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