What Is Mandatory Spending?

By John Misachi on January 7 2020 in Economics

On March 11, 2019, the administration of President Trump released the FY2020 federal budget. The proposed budget was a record $4.746 trillion against an estimated $3.645 trillion in revenues. This creates a budget deficit of over $1 trillion for the FY2020 fiscal year which runs from October 1 to September 30. The US federal spending is broadly divided into three categories; interest on federal government debt, discretionary spending, and mandatory spending. Interest on debts accounts for the least share of the expenditure ($479 billion or 10.1% of the expenditure) while mandatory spending accounts for the largest share of the federal budget ($2.841 trillion or 59.9% of the federal budget).

Mandatory Spending

Mandatory spending, or entitlement spending, is federal spending on certain items mandated by the law. The mandatory programs are established by Congress under the authorization laws. According to these laws, Congress is mandated to appropriate the required funds to keep the programs running. The legislations for the spending on mandatory programs are carried out by the Congress outside of the annual appropriation bill process. The funding for these programs can only be reduced by Congress by changing the authorization law itself. Mandatory spending accounts for the largest share of the federal budget (59.9% in FY2020) and is expected to account for an even larger share in the future.

Mandatory Programs And Eligibility Rules

The mandatory programs are established by Congress. These programs are mainly social welfare programs with specific requirements as set by Congress. If a mandatory program meets eligibility requirements, outlays are automatically made. Social security and medical care are the two largest mandatory programs, accounting for about 50% of the federal budget. The federal government allocated $1.01 trillion for social security. Social Security Acts of 1935 guarantees benefits for workers upon retirement. Medicare which subsidizes healthcare for the elderly will cost $679 billion while Medicaid which facilitates access to health care for low-income earners will cost $418 billion. Another entitlement program is the Income Security Programs which assist those who cannot provide for themselves. Other mandatory programs, Veterans Programs, and agricultural programs.

The levels of most of these mandatory spending programs are determined by the eligibility rules set by Congress. Congress determines who benefits level and who is eligible to receive the benefit. The amount of money spent on a program is determined by the number of applications and the number of people eligible for the benefit. However, some mandatory programs are in effect indefinitely while others, especially the agriculture program, expires at the end of a defined period.

Future Projections

The Congressional Budget Office projects that the annual mandatory spending will reach $4.3 trillion by 2027. While the spending accounted for an average of 10% of the GDP since 1973, the share is projected to increase to about 14% in 2027. On the contrary, discretionary spending is projected to fall further in the future. The number of beneficiaries for the mandatory programs is also expected to grow as the age of the average population continues to rise. The projections also show an increase in federal health spending which will increase the spending on Medicaid and Medicare.

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