QUESTION: What do the terms “discretionary spending” and “mandatory spending” mean in context of the federal budget?
ANSWER: "Discretionary spending" refers to the funds allocated by Congress to cover the administrative expenses of executive branch agencies, congressional offices and agencies, and international operations of the government. For example, most defense, education, and transportation programs are funded this way as are a variety of other federal programs and activities. It includes programmatic funding in these areas as well money for staff salaries and operating expenses. These funds must be authorized and appropriated by Congress and the President each year in order to keep the government open and operating.
“Mandatory spending,” also known as “direct spending,” refers to funds provided in laws other than appropriation acts (i.e., anything that isn’t “discretionary” is categorized as “mandatory”). It includes spending on entitlement programs (the federal food stamp program, unemployment insurance benefits, payments made through the Earned Income Tax Credit program, Medicare, Medicaid, and veterans’ pension programs), interest payments on the public debt, and non-entitlements such as payments to states from Forest Service receipts. Mandatory spending is sometimes described as “automatic” or “auto-pilot” spending because once eligibility, benefit formulas, and payment rules are enacted in law, spending for these programs continues automatically year-after-year unless Congress makes changes.
Some federal programs are a combination of both discretionary and mandatory spending. For example, the administrative expenses associated with running the Social Security Administration generally are funded with discretionary spending, but the benefit checks sent to retirees and disability recipients enrolled in Social Security programs are classified as mandatory spending.
The composition of the federal budget, specifically the split between mandatory and discretionary spending, is changing. In the 1980s, the share of the federal budget dedicated to discretionary and mandatory programs averaged 44 and 56 percent, respectively. Since then, however, the aging of the U.S. population and accelerating healthcare inflation have allowed mandatory spending to overtake and crowd out discretionary spending. In 2019, discretionary programs comprised only 30 percent of the federal budget (with mandatory programs consuming the remaining 70 percent) and by 2030 it is projected to fall even further to 25 percent.