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What US Cabinet Departments Really Do

By admin_45 in Blog What US Cabinet Departments Really Do

With US President-elect Joe Biden starting to pick his cabinet Secretaries for various Federal departments, today we will look at how these institutions actually spend their budgets. The goal here is twofold:

  • Provide a sense of relative scale about where the Federal government’s $5.6 trillion in 2020FY outlays were spent. This was $2 trillion more (+56 percent) than 2019FY and represents 26.4 percent of total 2020 GDP. (Note: US government fiscal year ends in September.)
  • Show that the names of many departments are misleading in terms of where their budgets are spent.

We’ll start with Health and Human Services (HHS), by far the largest Federal department in terms of dollars spent:

  • 2020FY outlays were $1,504 billion, up $290 bn (24 percent) from 2019FY. HHS represented 27 percent of all Federal government on-budget spending in 2020FY.
  • HHS is so large because Medicare (health insurance for seniors) and Medicaid (health insurance for low-income Americans) are both in its budget. These two programs, along with Medicare drug coverage, totaled $1,373 bn last year (91 percent of all HHS spending).
  • The 2 HHS institutions so much in the news this year – the Centers for Disease Control and the National Institutes of Health – did see their spending increase in 2020FY by $1.7 bn to $43 bn.

Upshot: when you hear much of the Federal budget goes to social program spending, that’s absolutely true, and in fact HHS is actually larger than the Social Security Administration’s annual outlay of $1.1 tn.

The next-largest cabinet-level department is Defense:

  • Outlays totaled $690.4 bn in fiscal year 2020, up $36.4 bn (5.6 percent) from 2019FY.
  • Military personnel salaries are only 23 percent of that total ($161.4 bn). The largest expenses in the budget are Operation and Maintenance ($278.9 bn, 40 pct of the total) and Procurement/Research and Development ($238.9 bn combined, 35 pct).

Upshot: Defense spending is 75 percent Ops/Maintenance and “stuff” and only 23 percent human resource-related spending.

Next comes the Department of Labor, and thanks to the Pandemic Recession it had the single biggest miss to its budget of any Federal department in 2020FY:

  • In February 2020, Labor was budgeted to spend $36.4 bn in 2020FY, about the same as 2019FY’s $35.8 bn.
  • It ended up spending $477.5 bn in 2020FY. Most of that was due to unemployment benefits paid ($196 bn) as well as supplemental programs funded by the CARES Act ($275 bn).

Upshot: most Pandemic Relief flowed through Labor’s budget, and should we see another fiscal package the same will likely be true.

Summary of these points: three US cabinet-level departments – Health and Human Services, Defense and Labor – spent $2.7 trillion in 2020FY, or 76 percent of all US Federal outlays (excluding off-budget items like Social Security). In 2019FY, before the pandemic, they were still 54 percent of all Federal on-budget spending. The swing factor is obvious, but even after the virus is gone these 3 departments will still be the heavy hitters in the US national budget.

To make efficient use of the rest of this section, we’ll call out some of the other major cabinet-level departments and highlight the largest line items in their budgets:

Department of Agriculture: 2020FY net outlays of $184 bn, 61 percent ($114 bn) of which went to fund Food and Nutrition support programs for lower income Americans. This far exceeds the amount spent on Federal Crop Insurance ($10 bn), and 2019 was the same way ($93 bn to Food and Nutrition support, $12 bn to crop insurance). Even outlays for the Commodity Credit Corporation ($29 bn) don’t come close.

Conclusion: by dollars spent, Ag is a social safety net agency rather than one centered on the agrarian economy.

Department of Commerce: a very small budget here (just $16 bn in 2020FY), and most of it went to pay for the decennial census ($7 bn) and the National Ocean and Atmospheric Administration (NOAA, essentially America’s weather service, $5 bn).

Conclusion: Commerce is essentially the US government’s big data division, counting the population and providing weather forecasts.

Department of Education: a mid-sized budget ($204 bn in 2020FY), but heavily skewed in the just-ended fiscal year to Federal Student Aid ($161 bn, 79 pct of total). Worth noting: student aid spending was up $92 billion in 2020FY.

Conclusion: Education is a student loan company inside the Federal government.

Department of Energy: another small budget ($32 bn in 2020FY) and dominated by maintaining the US’s nuclear weapons ($11 bn, 34 pct) and nuclear facility environmental cleanup ($6 bn, 19 pct).

Conclusion: Energy is more a piece of the Defense Department than anything else.

Department of Homeland Security: outlays here grew dramatically in 2020FY, to $92 bn from $56 bn in 2019 (up 64 pct). Almost all of that increase came from a $31 bn increase in FEMA Disaster Relief, both pandemic and non-pandemic related. The bulk of the department’s non-disaster budget relate to Customs and Border Protection ($17 bn), ICE ($8 bn), TSA ($7 bn) and the Coast Guard ($12 bn).

Conclusion: DHS, like many other departments we’re discussing today, have seen their budgets and responsibilities increase dramatically this year.

Department of Transportation & Department of Veterans Affairs: two large agencies, with 2020FY spending of $100 bn and $218 billion respectively. Both saw material increases in spending versus 2019FY from the pandemic, +20 bn for Transportation (aid to the airline industry) and +$19 bn for VA hospitals and health care.

Conclusion: unlike most of the departments we’re profiling today, these 2 largely do what their names imply – maintain infrastructure and help American’s veterans.

Final thought on all this: with another fiscal stimulus package coming either now or after Inauguration Day 2021, we’re no doubt in for another $5 trillion-ish Federal budget in 2021FY. The real question is how much this can/will shrink in 2022FY and beyond as the US economy recovers.


Monthly Treasury Statement for September 2020, Fiscal Year End:

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