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Mandatory Spending

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mandatory spending

Medicare benefits are mandated by Federal law.

Photo: Jason Greenspan/Getty Images

Definition: Mandatory spending funds U.S. Federal programs that have already been established by Congress under so-called authorization laws. These laws both establish the federal programs, and mandate that Congress must appropriate whatever funds are needed to keep the programs running. In other words, Congress cannot reduce the funding for these programs without changing the authorization law itself. Funding  can't be changed without, quite literally, an act of Congress.

Some authorization laws provide direct spending to recipients. These include the major entitlement programs, such as Social Security, Medicare and Medicaid. Almost all of them are permanent, but there are exceptions. For example, the Food Stamp program requires periodic renewal. (Source: Senate Appropriations Committee, About the Budget Process)

Therefore, the mandatory portion of the U.S. budget is simply the estimated cost to implement the benefits promised by these authorization laws. These estimates are made by the Office of Management and Budget, or OMB.

Mandatory programs are outside of the normal discretionary budgetary process that's negotiated between the President and Congress each year. Find out more the Budget Process and Discretionary Spending.

What Are the Mandatory Programs?

The two largest mandatory programs are Social Security and Medicare, both of which provide benefits to seniors. Social Security was mandated in 1935 by the Social Security Act. It guaranteed that workers would receive benefits after they retired. It was funded by payroll taxes that went into a trust fund used to pay out the benefits. At first, there were more healthy workers paying into the fund than retirees taking benefits. This allowed Social Security money to provide benefits to the blind and disabled, as well. Find out more about the Social Security Trust Fund.

Medicare subsidizes health care for those over age 65, and was added to the Social Security Act by Congress. It's in two parts. Part A, the Hospital Insurance program, is 100% funded from current payroll taxes. Part B, the Supplementary Medical Insurance program, and Part D, the Prescription Drug program, are only partially paid for from premiums paid by the beneficiaries. However, just a little over half of Medicare is paid for. The rest comes from general taxes, and contributes to the budget deficit. For more, see Health Care Reform.

Medicaid provides health care to those with low incomes. It's funded by general revenue from both the Federal and state governments, and is administered by the states.

Income support programs provide Federal assistance for those who can't provide for themselves. One group helps keep low income families from starving to death. These include Food Stamps, Child Tax Credits and Child Nutrition programs. The Supplemental Security for the blind and disabled provides training and funds for the disabled. There's also unemployment benefits for those who were laid off.  Student Loans help create a more highly skilled work force. Other Retirement and Disability programs are for those who were former Federal employees, including Civil Servants, the Coast Guard and the Military.

In FY 2009, Congress passed the Economic Stimulus Act. This was added to the mandatory budget in FY 2010 as the TARP program, and homeowner assistance in FY 2011 on out. For specifics, see Current U.S. Mandatory Budget Spending.

In FY 2010, the Patient Protection and Affordable Care Act became law, and started phasing in new health care benefits and costs that year. It began extending coverage to those with pre-existing conditions, children, and those who were laid off. It gave subsidies to small businesses and seniors with high prescription drug costs. It also provided funding to ease the shortage of doctors and nurses. These are mandatory costs that are offset with higher payroll taxes, higher fees to prescription drug companies, and lower payments to hospitals.

Why Are Mandatory Programs Important?

Mandatory programs have become the largest portion of the Federal budget. In fact, two-thirds of the budget automatically goes to these programs. Despite this burden, mandatory spending grows seemingly without restraint. Why? It's difficult for any elected official in Congress to vote for a reduction in these benefits. Who can vote for cutting off the income of Grandma, the blind or a veteran? In addition, many of these groups now have powerful lobbyists, like AARP, who can sway elections and funding. It's easy, and politically rewarding, to mandate new programs, and political suicide to eliminate them.

A good example of this is health care reform. It was passed in 2010, but at great political cost. Many of the Congressmen who voted for it lost their seat in the mid-term elections to candidates from the Tea Party. This is despite its promise to actually reduce the mandatory budget by cutting health care costs, and charging the health care industry more for Medicare and Medicaid. For more, see Health Care and the Budget. Article updated October 7, 2013.

Also Known As: Direct Spending, Entitlement Programs

Examples: Mandatory spending within the U.S. budget will increase over the next ten years thanks to Social Security expenditures for retiring Baby Boomers.

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