What Is Mandatory Spending
Mandatory spending are those expenditures that must go into the U.S. budget. They are mandated by Federal law, and so can't be changed without, quite literally, an act of Congress. AS a result, the mandatory budget is an estimate of the cost to implement the benefits promised by these Federal laws. The estimate is 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. To find out more about this process, see The Budget Process and Who's Who and Discretionary Fiscal Policy.
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 certain classes of Americans who may not be self-sufficient One group helps keep low income families from starving to death. These include Food Stamps and Child Nutrition programs. Others help those who are the victims of disabilities, such as Child Tax Credits, Supplemental Security for the blind and disabled, and compensation for the unemployed. 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 Mandatory Budget. In 2010, the Patient Protection and Affordable Care Act became law, and starting 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, seniors with high prescription drug costs, and funding to ease the shortage of doctors and nurses. The costs will be offset with higher payroll taxes, higher fees to prescription drug companies, and lower payments to hospitals. In FY 2011, credit from health care reform was added.
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 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 February 28, 2012.
Understand the Current Federal Budget
- Current Federal Budget Breakdown
- Federal Revenue and Taxes
- Mandatory Budget
- Discretionary Budget
- Defense Spending
- Deficit
