Spending

Each year, lawmakers determine how much the federal government will spend and where the money will be allocated among 15 cabinet departments and dozens of independent agencies and commissions. But the budget is more than just a tally of numbers. It also expresses the policy priorities of our government — and country.

In 2016, total federal spending was $3.9 trillion — about one-fifth of the economy and $12,000 for each person living in the United States. That spending is divided into two large categories — mandatory spending and discretionary spending.

Mandatory Spending

This category of spending is called "mandatory" because the federal government is legally obligated to pay for the activities and because current law allows the activities to continue indefinitely without action by lawmakers. Put another way, spending on a mandatory program is essentially on “autopilot” unless policymakers change the laws governing the program.

Many major programs that provide benefits to individuals are classified as mandatory spending, such as Social Security, Medicare, and Medicaid. These programs are also often referred to as "entitlements" because individuals who meet the programs’ eligibility requirements are "entitled" to benefits.

Mandatory spending covers programs in six major areas:

• Social Security provides payments to disabled and retired workers, as well as to their spouses, dependent children and survivors.
• Major Health Programs finance healthcare through four major programs: Medicare (for seniors and disabled people); Medicaid (for low-income people); exchange subsidies (for low and moderate income people); and the Children’s Health Insurance Program, or CHIP (for low-income children and parents).
• Income Security Programs make payments to individuals with low incomes through six programs: Earned Income Credit (refundable tax credits for the working poor); Supplemental Nutritional Assistance Program, or SNAP (formerly known as food stamps); Supplemental Security Income (payments to disabled children and adults with limited income); unemployment compensation (time-limited payments for people who become unemployed); family support and foster care; and child nutrition.
• Federal Retirement Programs for federal civilian and military retirees.
• Veterans’ Programs that provide healthcare, income support, and other benefits for veterans.
• Other Programs consist of a diverse group of programs including those that provide agricultural subsidies, student loan subsidies, the Department of Defense’s Medicare-eligible Retiree Health Care Fund (including Tricare for Life), deposit insurance, and subsidies for Fannie Mae and Freddie Mac.

Lawmakers do not provide specific funding levels for mandatory spending. Instead, they specify who is eligible for benefits as well as the type and level of benefits that each person can receive. As a result, total spending on mandatory programs depends on how many people actually claim benefits. For example, the unemployment insurance program has eligibility criteria that, once met, entitle an individual to receive a certain level of benefits. Total spending on the program depends on the number of people who file for unemployment, not on a fixed amount of funding set by lawmakers.

The term "mandatory" doesn’t mean that lawmakers are powerless to alter this spending, however. Elected officials can at any time adjust the eligibility criteria and benefit formulas that determine spending on mandatory programs, as they did with Social Security in 1983. However, if Congress and the President take no action, the current formulas remain in place year after year, and the spending flows as specified by the law without interruption.

Over time, spending for programs such as Social Security, Medicare, and Medicaid has grown. In 1970, only 39% of the federal budget was spent on mandatory programs and net interest, while the rest funded an array of discretionary programs. In 2015, 68% of federal spending went to mandatory programs and net interest. Looking forward, mandatory spending and net interest together are projected to grow to 82% of the federal budget in 2047 — accounting for all of the projected future growth of spending.

Discretionary Spending

Congress and the President determine the amount of discretionary spending through the enactment of annual appropriation legislation. As opposed to the "automatic" nature of mandatory spending, discretionary spending must be renewed each year.

There are typically 12 separate appropriations bills shepherded through the Congress by powerful appropriations committees. Defense spending typically represents more than half of discretionary spending. Other major activities funded through discretionary spending include: homeland security, education, transportation, research, food safety, science and space programs, disaster assistance, environmental protection, public housing, federal law enforcement and the courts, and a host of other national programs.

Historically, most federal spending was discretionary. In the 1960s two-thirds of total federal spending was on discretionary programs. Now discretionary spending is about one-third of the budget, and, over the next 10 years, it will fall further to about one-fourth of total spending, according to CBO.

Under current law, discretionary spending will sink to historically low levels as a share of our national economy. The projected decline is primarily the result of the Budget Control Act of 2011, which imposed limits on discretionary spending through 2021.