To reduce budget deficits, policymakers must make politically painful policy changes by raising taxes on constituents and/or reducing spending on services provided to them. Because different tax increases or spending cuts of the same magnitude do not always have the same impact, policymakers should aim to make informed decisions that target these policy changes rationally.
Federal spending can be divided into three main categories. The first category is mandatory spending, which is spending that operates on autopilot based on benefit formulas approved by lawmakers in years past. Mandatory spending makes up about two-thirds of the budget and includes major entitlement programs such as Social Security and Medicare.