Question

All yearly government spending is broken up into two categories; Mandatory spending which is required by law and Discretionary spending which is spending that must be approved each year by Congress.

Mandatory spending is spending that is required by current law. Most federal mandatory spending is in the form of safety net and entitlement programs, including the Food Stamp program, Social Security, Medicaid, and Medicare. Safety net programs represent “transfer payments” by which the government redistributes the income of the taxpayers by collecting taxes and providing services for those less fortunate and who do not provide any type of good or service in return. Entitlement expenditures include Medicaid and Social Security in which money that has been collected from taxpayers is then given back to those that contributed once they reach a certain age or meet other requirements. Other forms of mandatory spending include veterans benefits. For example, being a veteran means that you have already provided a service for which you were guaranteed, by law, certain benefits and payments (salary once you served your term/retirement, college benefits once you served your term, health insurance after you served your term, etc.). Because the law requires that these benefits be paid once the military personnel has served their term, these expenditures are mandatory and are automatically included in the US budget each year. The amount included for these expenditures is based on the number of citizens who “qualify” for these payments whether safety net, entitlement, or veteran benefits. Many other mandatory expenditures fall under the US budget. Over half of the entire US budget is mandatory which means that it cannot be changed without a change to the law.

About one-third of federal spending is Discretionary. This means that while this spending is for programs that are considered necessary to the operation of the US, they must be re-approved each year by Congress through a vote. The largest category of Discretionary spending is National Defense which must be approved each year. Other categories of Discretionary spending include education assistance, Interstate transportation programs, national parks, the Justice / Court system, and science, space, and technology research programs.

An appropriation is an Act which congress passes to approve discretionary spending. For example, one category of spending on education may be mandatory but congress may want to increase spending through an appropriation (or a special vote) which places the extra spending under the discretionary piece of the budget. One example of an appropriation that increased mandatory spending in the US annual budget is that of the Veteran’s Choice program. Veteran’s health benefits are required by law (they have served and part of their payment for serving is free health care after they retire). However, to receive their health benefits veterans have historically been required to utilize specific Doctors and hospitals. This is the law and therefore part of the mandatory budget. However, an appropriation was passed in 2019 which added extra funding to allow veterans to visit any Doctor they chose and be treated at any hospital of their choosing. The funding for this change is part of the discretionary budget and had to be approved by congress.



Questions:



1) Name and define the two types of spending that are included in the US budget each year.




2) What does it mean that mandatory spending is spending required by law? Give an example.


3) How much of the US yearly budget is required by law?







4) Who must vote to approve additional (Discretionary) spending each year?





5) What is the largest category of spending that must be voted on each year?





6) What is appropriation? Give an example.

Answer 1

In the decade leading up to the Great Recession, the government kept federal spending below 20% of GDP. It grew no faster than the economy, around 2% to 3% per year. During the recession, spending grew to a record 24.4% of GDP in FY 2009. This increase was due to economic stimulus and two overseas wars.3

Step-by-step explanation:

At the same time, growth slowed, which reduced tax receipts. Congress worried about the ballooning U.S. debt. No one could agree on how to reduce it. As a result, Congress enacted across-the-board budget cuts, called "sequestration."4 That finally reduced spending to 20.4% of GDP in FY 2015.5

Since then, spending has crept up again despite the sequester. Congress and the president rely on deficit spending to boost economic growth.6 But deficit spending is out of control. It rises each year, even when the economy is doing well.