It's a tough question. While the Constitution is a neat guide and all, it has to be changed as times change. Primarily, I feel government spending and power should be limited to:
A. Military - ...Last I checked, the military being privately-owned is a sign of a failed state and/or undeveloped nation. Let's keep warlords out of the equation shall we? A place this can get shaky or undefined is in relation to states/provinces. A powerful militia should be employed by local governments, so as to balance out federal power. I know some say the government oppressing the people is libertarian paranoia, but is America exempt to democracy lapsing into dictatorship, as has happened to so many other free countries?
B. Policing - Once more, policing should be the authority of governments, though private security should be allowed as well. The publicly-funded police are of course necessary to guarantee that all rights and priveleges of the common people are preserved. The policing sector naturally includes prison systems to house criminals; this cost can be shared with businesses who will be able to exploit the free labor of the prisoners in the system.
C. Printing/Coining of currency - I personally believe it would be insane for counterfeiting to be a made a legal practice... you think overprinting is bad NOW?
D. Foreign Aid - Aid should primarily serve strategic and national goals. This includes buying property abroad, for citizens to build businesses upon, thus employing the locals while also adding revenue to the homeland's income pool. The government should also be able to purchase lands abroad, through a consensual transaction by all parties involved, and these lands may be annexed by the homeland. Illegal immigration could be a problem here.
The government should also be willing to spend money here as an extension of the military budget; i.e. giving weapons to friendly regimes and democratic movements. Foreign aid should also be used to help build foreign markets for goods.
E. Infrastructure - Infrastructure such as roads, railways and bridges need to be maintained with public funds unless it is profitable in certain cases or if a charitable group decides to pay to maintain it. Infrastructure extends to public buildings in this example as well.
F. Economic Stimulus - Stimulus spending by the government should be primarily in sectors that expand and facilitate commerce, industry and above all, employment. Loans/grants should be given to small businesses so as to help them grow against the powerful forces of corporate competition. Alternative energy sources should be funded so as to reduce their costs and to help wean the country off dependence on foreign energy. In addition, investment in infrastructure should be undertaken, so as to make the country more efficient and modern. Most of the stimulus should be funded by the "Free Market Tax" imposed on big business people and large inheritances; the tax serves to help the government preserve/restore/enhance the free market that allowed the rich to become rich in the first place.
On a side note, economic stimulus can probably take the form of non-spending measures, such as tax cuts in exchange for employing x number of people relative to a business' current income level.
G. Welfare/Social Safety Net - The big one, which causes the Left and Right to tear various important body parts off of eachother in a bloodthirsty, pro/anti-government rage. The key welfare service of the police has already been detailed separately due to it's importance and separation from "general" welfare. What kind of welfare is pursued varies on the taxation system.
With something such as the Negative Income tax, the welfare system is already taken care of for all intents and purposes.
Using the current system, welfare should primarily take the form of being given at the local level. The states usually run surpluses, and they can better care for their inhabitants. Due to a less-omnipotent size, they could also have less waste as a result of it being harder for money(dealing with billions instead of trillions) to get "lost."
Welfare can be partially implemented in forms of taxation; the VAT, for instance, should not be applied to needed medicine such as vitamins, healthy(simple) food, simple clothing, or decent housing. With the less fortunate's necessities mostly untaxed, there is the issue of how it's paid for. If taxation is low, the poor need not rely as much on state aid in order to purchase what they need.
Social Security will likely have to be phased out - or at least, the retirement part - due to it being hinged on population numbers. That, or the qualifying age greatly increased/benefits reduced. This is primarily for the retirement aspect, though, and this can be reformed through forced investment in retirement accounts.
There should be a basic healthcare subsidy, which should be amplified depending on the importance of the person's job(sections such as management, mining/farming, manufacturing, service sector, etc.) to the economy; emergency care should be free. With the big healthcare issue taken care of, and the private sector mostly intact(if regulated to prevent excessive prices), other needs may be tended to. Public housing should primarily take the form of large apartments so as to cut down on consumed space, though not with the horrid conditions of say, the late 1800s. Children should be guaranteed mostly-free healthcare until they are of working age in their respective area.
To prevent overpopulation and help a child's well-being, there should be limits to the amount of children people can have relative to their economic conditions. Orphanages should receive increased government spending so as to help pay for education programs and job training. The school system should be privatised in some ways, so as to allow private sector efficiency to be involved(the government will pay the fee for the private employees). Any privatised course will have to meet curriculum requirements though, naturally. Fire departments should be like the police: publicly-funded, though there will be private alternatives.
) your views will of course be different, but to each his own! I look forward to all of your views on what government spending should be limited to. 
) aside from the fact that some things were better off being managed by the local government(i.e. the welfare system)... I'll remember for next time. Thank you.
