Government consumption and investment

Federal spending on national defense accounts for nearly one-fifth of total government outlays. Engagement in the Middle East caused defense spending to balloon between 2000 and 2012, accounting for a significant portion of the growth in total government spending during this period. However, defense spending increased between 2015 and 2020 as the United States ramped up efforts.

Federal nondefense spending increased considerably because of the financial sector meltdown and economic downturn. Two large components of this expansion are the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act of 2009. TARP was implemented to restore confidence in the financial markets and came with a sticker price of $700.0 billion; however, less than this was spent. The stimulus package had a national cost of $787.0 billion, but this includes the costs of taxes and considerable spending to be distributed beyond 2010. After the sharp influx of federal spending in response to the financial collapse, nondefense spending has receded, albeit from a high point during the recession. Since 2015, nondefense spending has been on the upswing again as federal programs and transfer payments expanded. However, the federal government's ability to step in for weak consumer activity came under assault, as deficit hawks used long-term deficit concerns as reasoning to block near-term stimulus. The debt-ceiling brinksmanship throughout the period reduced government expansion, with politicians risking a self-inflicted catastrophe on US credit unless federal spending was curtailed.

State and local spending, which accounts for more than half of total government expenditure, withered during the recovery. State and local spending declined between 2010 and 2013 before growing in 2015. However, it fell in 2015 and 2016. State and local governments who rely on tax collections and soaring unemployment after the recession reduced their receipts significantly. While the federal government runs a deficit, nonfederal governments, barring Vermont, have balanced budget requirements. State and local municipalities are subject to higher interest rates and weaker access to credit. Because of this, states and cities had to cut the size of their workforces and scale back on nonessential services. Combined with cuts in Medicare and Medicaid reimbursement rates, overall government consumption receded between 2011 and 2014 but increased in 2015 and 2016.

While declines in government employment levels in early 2018 signal a reduced demand for labor, it became difficult for legislators to remove expenditure programs once they were entrenched. On the surface, the Trump administration signaled an aversion to expansive government programs, which was exemplified by leaving job placements unfilled. However, it also suggested increased defense spending fueled by anticipated economic growth. Total government spending marginally grew in 2017, but stimulus initiatives on the part of the government drove up spending in 2018 and 2019. In fact, government spending growth in 2019 was at its highest rate since the end of the previous decade.

Considering that much of the economy was purposely put on ice to slow the spread of COVID-19 (coronavirus), the longest economic expansion on record ended abruptly during the first quarter of 2020. Government spending growth remained elevated in 2020 as the global coronavirus pandemic and the collapse of oil prices disrupted global supply chains and demand. In response, the Federal Reserve cut its interest rate target to near-zero in mid-March 2020, pledging to inject as much liquidity as needed into financial markets by purchasing treasuries, mortgage-backed securities and corporate debt. The federal government also passed fiscal stimulus legislation worth over $2.0 trillion to mitigate the fallout from the self-imposed curtailment of large swaths of the economy.

In December 2020, Congress passed fiscal support totaling more than $900.0 billion to support the country during a surge in the virus and the reimposition of some restrictions on economic activity. Initially, there was no funding for local and state governments, but the Biden administration passed an additional stimulus package in March of 2021, which included significant funding at the local and state levels. Moreover, a proposal amounting to nearly $1.0 trillion in spending, of which more than half is new spending, was agreed to on a bipartisan basis in June 2021 and signed into law in November 2021. As the immediate crisis subsided, the scale of government intervention naturally declined, reducing overall government consumption and investment. Despite the legislation passed in 2021, government consumption and investment fell by 0.3% in the year and 1.1% during 2022. Shifting fiscal priorities and budgetary constraints also played a role. Policymakers began focusing on managing public debt and addressing inflationary pressures, often involving scaling back expenditure growth. Also, the gradual reopening of the economy reduced the need for emergency spending that characterized the initial pandemic response.

Political tensions with China, Russia and Iran increased the urgency for national defense during 2023 and 2024 and infrastructure projects started to unfold. Despite both political parties in the United States participating in brinksmanship during debt-ceiling talks, spending bills continue to be passed. Because of this, government spending returned to growth during 2023, rising 3.9% during the year. In 2024, the election cycle played a significant role in government spending as comprehensive economic programs were passed to win public support and drive economic prosperity, leading to continued growth during 2024. Government consumption and investment will expand 1.4% in 2025 as Congress extended appropriations. However, spending will also be affected by the Trump Administration's decisions, backed by the Office of Management and Budget (OMB) and the Department of Government Efficiency (DOGE), on budget cuts. Legal battles may delay proposals to eliminate entire agencies, but workforce reductions have already occurred. Some federal employees accepted severance offers, reducing government payroll expenses and lowering workforce numbers after the severance period ended.