Order Code RL33074
CRS Report for Congress
Received through the CRS Web
Mandatory Spending:
Evolution and Growth Since 1962
September 13, 2005
Thomas L. Hungerford
Specialist in Public Sector Economics
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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Mandatory Spending: Evolution and Growth Since 1962
Summary
Federal spending amounts to almost 20% of gross domestic product (GDP) and
the federal deficit stands at nearly 4% of GDP. Projections suggest that with no
changes in policy and the impending retirement of the large baby boom generation
the United States is facing a long-term fiscal imbalance. Efforts to reduce the federal
deficit and the long-term fiscal strain may include reductions in entitlement spending,
a major component of mandatory spending. Mandatory spending is the government
spending where the budget outlays are controlled by laws other than appropriation
acts, and includes such popular programs as Social Security and Medicare. Other
programs included in mandatory spending are temporary assistance to needy families
(TANF), supplemental security income (SSI), unemployment insurance, veterans
benefits, federal employee retirement and disability, food stamps, and the earned
income tax credit.
The composition of mandatory spending has changed over the past 40 years. In
1962, before the introduction of Medicare, Medicaid, and SSI, mandatory spending
accounted for less than 30% of all federal spending and Social Security accounted for
half of all mandatory spending. By 2004, mandatory spending comprised over half
of total federal spending and Social Security made up about 40% of mandatory
spending. The fastest growing components of mandatory spending have been
Medicare and Medicaid, which together accounted for over 36% of mandatory
spending by 2004.
Mandatory spending has grown relative to GDP, with most of the growth
occurring before 1975. Both Medicare and Medicaid have steadily grown relative to
GDP from almost nothing in 1965 to about 3.8% of GDP in 2004. Social Security
grew from 2.5% of GDP in 1962 to 4.3% in 2004. And lastly, SSI has been and is
projected to continue to amount to between 0.2% and 0.3% of GDP.
The aging of the U.S. population, increasing life expectancy, and rising health
care costs will put severe pressure on the federal budget over the next 75 years.
Medicare and Medicaid are projected to amount to 5.3% of GDP by 2015 and to
18.9% in 2080. Social Security is projected to be 4.5% of GDP in 2015 and 6.4% of
GDP by 2080.
With discretionary spending reduced to historic lows, any significant reductions
in federal spending are likely to come from mandatory spending. Since most of the
increases in federal spending occur in Social Security, Medicare, and Medicaid, these
programs are likely to be targets for budget reductions. Focusing budget cuts on
these three key programs, however, could compromise their goals and adversely
effect the elderly and the poor. Over the next 75 years, the growth in Medicare and
Medicaid are projected to be the largest contributors to the long-term fiscal shortfall.
Fundamental reform of these programs may be proposed to eliminate the long-term
fiscal strains while preserving the goals of these programs.
This report will be updated annually.

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Contents
Components of Mandatory Spending Since 1962 . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Relative Size of Mandatory Spending and Its Components . . . . . . . . . . . . . . 3
Mandatory Spending and Total Federal Spending . . . . . . . . . . . . . . . . . . . . . 3
Mandatory Spending and the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Real Growth in Mandatory Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons Mandatory Spending Increased . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mandatory Spending Beyond 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
List of Figures
Figure 1. Major Components of Mandatory Spending . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. Mandatory Spending and Its Components as a Percent of Total
Federal Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 3. Mandatory Spending as a Percentage of GDP . . . . . . . . . . . . . . . . . . . . 5
List of Tables
Table 1. Average Annual Real Growth Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

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Mandatory Spending: Evolution and Growth
Since 1962
While federal spending as a proportion of gross domestic product (GDP) has
remained relatively constant over the past 40 years, the same cannot be said for the
federal deficit. In 1962, the federal deficit was equal to 1.3% of GDP; by 2004 it was
nearly 4% of GDP. Furthermore, the Congressional Budget Office (CBO) projects
that the federal deficit will be greater than 2% for the next six years if policy follows
current laws. Several studies as well as knowledgeable observers have warned of the
dangers of the long-term fiscal imbalance.1 Consequently, the Administration and
Congress are under pressure to reduce this long-term fiscal strain. One option is to
reduce federal spending. Thus, some people have called for reductions in
entitlements, the major component of mandatory spending.
Mandatory or direct spending is the government spending where the budget
authority and outlays are controlled by laws other than appropriation acts, and
includes such popular programs as Social Security and Medicare. The two other
broad categories of federal spending are discretionary spending which is controlled
annually through the appropriation acts, and interest spending on the federal debt.
Discretionary spending was subject to budget limits or “caps” in the 1990s.
Consequently, discretionary spending as a proportion of total federal spending has
fallen.
This report reviews the trends in mandatory spending since 1962. In addition,
CBO’s baseline projections of mandatory spending to 2015 are reported. The report
specifically examines the evolution of mandatory spending in relation to total federal
spending and to the economy as a whole. It shows which components of mandatory
spending have been growing and which ones have not.
1 See Congressional Budget Office, The Budget and Economic Outlook: An Update, Aug.
2005; General Accounting Office, “Truth and Transparency: The Federal Government’s
Financial Condition and Fiscal Outlook,” remarks by David M. Walker at the National Press
Club, Sep. 17, 2003; Alan Greenspan, “Reflections on Central Banking,” remarks by
Chairman Alan Greenspan at a symposium sponsored by the Federal Reserve Bank of
Kansas City, Jackson Hole, WY, Aug. 26, 2005; Alan J. Auerbach, William G. Gale, and
Peter R. Orszag, “Sources of the Long-term Fiscal Gap,”Tax Notes, May 24, 2004; CRS
Report RL31235, The Economics of the Federal Budget Deficit, by Brian W. Cashell.

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CRS-2
Components of Mandatory Spending Since 1962
Figure 1 shows the major components of mandatory spending since 1962. Also
shown in the figure are CBO baseline projections2 for these components to 2015. In
1962, neither Medicare nor Supplemental Security Income (SSI) existed and
Medicaid accounted for less than one half of one percent of mandatory spending.3
Mandatory spending was almost equally divided between Social Security (50.2%)
and other mandatory spending (49.5%). Other mandatory spending includes
spending on programs such as federal employees retirement and disability,
unemployment insurance, deposit insurance, veterans benefits, food stamps and child
nutrition programs, aid to families with dependent children (AFDC)/temporary
assistance to needy families (TANF), housing assistance, and the refundable portion
of the earned income tax credit (EITC).
Figure 1. Major Components of Mandatory Spending
100%
Other
90%
Mandatory
80%
SSI
70%
Medicaid
60%
t
n
e
Medicare
c
50%
Per
40%
30%
Social
Security
20%
10%
0%
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Fiscal Year
Source: CBO and OMB.
Following the introduction of Medicare in 1965, spending on Medicare and
Medicaid has accounted for an increasing share of mandatory spending. In 1970,
Medicare and Medicaid made up 14.1% of mandatory spending. By 2004 it had
2 CBO’s baseline projections start with Congress’s most recent budgetary decisions and then
assume that no policy changes will be made over the projection period. For entitlement
programs CBO assumes that current laws will continue unchanged and by law assumes that
discretionary spending will grow at the rate of inflation throughout the projection period.
3 In 1965, Medicaid was enacted to replace two federal programs that provided grants to
states for medical care to the needy and elderly. The spending figures for Medicaid before
1965 are for these two programs.

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grown to 35.6%. In 2004, Social Security outlays were 39.6% of mandatory
spending, Medicare was 21.4%, Medicaid was 14.2%, SSI was 2.5%, and other
mandatory spending was 22.0%.
CBO’s baseline projection assumes that this trend of increasing health spending
will continue. CBO projects that Medicare will account for almost 30% of
mandatory spending by 2015 and Medicaid will make up 16%. Social Security
outlays will account for 38.7% of mandatory spending, SSI 2.2%, and other
mandatory spending 14.4%. The composition of mandatory spending has changed
dramatically over the past 40 years and is projected to continue changing significantly
over the next 10 years.
The Relative Size of Mandatory Spending and Its
Components
Not only has the composition of mandatory spending changed over the past four
decades, but so too has its size relative to total federal spending and to the economy
as a whole. The size of the components of mandatory spending relative to total
federal spending provides information on the spending priorities of past Congresses,
while the size relative to GDP provides information on the economic resources
devoted to these programs.
Mandatory Spending and Total Federal Spending
Figure 2 displays the trends in mandatory spending and its components as a
percentage of total federal spending since 1962. CBO baseline projections to 2015
are also shown. Mandatory spending (the top curve in Figure 2) comprised about
25% of total federal spending in 1962. Beginning in 1968, mandatory spending
started growing relative to total federal spending and by 1975 accounted for about
45% of total spending. Over the next 15 years it remained a fairly steady proportion
of total spending, but began growing again after 1990. Today mandatory spending
accounts for 54% of total spending. CBO projects that mandatory spending will
continue growing until it accounts for 60% of total spending in 2015. However, by
law CBO assumes that discretionary spending will increase at the rate of inflation
over the projection period. If discretionary spending is assumed to grow at the same
rate as GDP, for example, then mandatory spending would be projected to account
for 55% of total federal spending in 2015.

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Figure 2. Mandatory Spending and Its Components as a Percent of
Total Federal Spending
70%
60%
50%
Other
Mandatory
t
SSI
40%
n
e
Medicaid
c
Per 30%
Medicare
20%
Social
10%
Security
0%
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Fiscal Year
Source: CBO and OMB.
Although mandatory spending has grown relative to total federal spending, the
various components of mandatory spending have followed trends that differ from one
another. SSI has varied between 1% and 1.5% of total spending since its inception
in 1974 and CBO projects that this trend will continue to 2015. Spending on Social
Security grew somewhat as a proportion of total spending between 1962 and 1974,
but has remained a relatively steady share of total federal spending since 1974 (at
about 20%). Both Medicare and Medicaid have steadily grown relative to total
federal spending and are projected to continue growing. In 2004, Medicare
accounted for 11.6% of total spending while Medicaid accounted for 7.7%. CBO
projects that Medicare will comprise 16.9% of total federal spending by 2015 and
Medicaid will comprise another 9.9% of total spending. Lastly, “other mandatory
spending” has fluctuated between 10% and 16% of total spending since 1962 but is
projected to shrink to 8.6% of total federal spending by 2015.
Mandatory Spending and the Economy
Figure 3 shows the evolution of mandatory spending and its components in
relation to GDP since 1962. Many of the same general trends are apparent in Figure
3 as they were in Figure 2. Mandatory spending grew in relation to the economy
between 1968 and 1975, and then remained relatively constant after 1974 at between
9% and 11% of GDP thereafter. Social Security spending grew relative to the
economy from 2.5% of GDP in 1965 to 4.9% of GDP by 1983. After a slight dip in
1984, Social Security spending has been equal to about 4.5% of GDP since and is
projected to continue at 4.5% of GDP until 2015. SSI has consistently been between

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0.2% and 0.3% of GDP since 1962 and is projected to continue to do so. Both
Medicare and Medicaid have grown in relation to the economy, and combined are
projected by CBO to amount to 5.3% of GDP in 2015.
Figure 3. Mandatory Spending as a Percentage of GDP
14%
12%
Other
10%
Mandatory
t
8%
n
SSI
e
c
Medicaid
Per
6%
Medicare
4%
Social
2%
Security
0%
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Fiscal Year
Source: CBO and OMB.
Real Growth in Mandatory Spending
Table 1 reports the average annual real or inflation-adjusted growth rates for
GDP, total federal spending, and mandatory spending since 1962. Also reported in
the table are the average annual growth rates for the 1968 to 1975 period when
mandatory spending increased dramatically. Over the full 43-years period from 1962
to 2004, the real growth of total federal spending was less than the real growth rate
of GDP. However, the reverse was true during the 1968 to 1975 period when the
growth rate of federal spending was greater than economic growth. Growth in
mandatory spending outstripped economic growth in both the 43-year period and the
shorter eight-year period. During the 1968 to 1975 period, the growth rate of
mandatory spending was 4.5 times that of GDP.

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Table 1. Average Annual Real Growth Rates
(in percent)
1962-2004
1968-1975
Gross Domestic Product
3.4
2.7
Total Federal Spending
3.1
3.1
Mandatory Spending
5.5
12.4
Social Security
4.8
8.9
Medicare
7.6
9.9
Medicaid
17.0
19.2
--
SSI
3.3
Other Mandatory
4.4
15.4
Spending
Source: CRS calculations based on OMB data..
Note: SSI did not begin until 1974.
Over the 1962 to 2004 period, both Medicare and Medicaid grew at a higher rate
than mandatory spending, total federal spending, and GDP. Real spending for
Medicaid grew 17% per year over this period and 19.2% per year during the 1968 to
1975 period. The real growth rate for Medicare between 1965 and 2004 was
7.6%—2.1 percentage points greater than that for mandatory spending and 4.2
percentage points greater than the growth rate for GDP In contrast, while Social
Security grew at a higher rate than either GDP or total federal spending, it grew at a
lower rate than mandatory spending (4.8% versus 5.5%). Real SSI spending, with
a 3.3% real growth rate, has not kept pace with economic growth since its inception
in 1974.
Reasons Mandatory Spending Increased
Four major factors can be identified as to why mandatory spending increased in
dollars terms and in relation to total federal spending and GDP. First, the decreasing
importance of discretionary spending was the result of inflation-adjusted defense
spending falling in the 1970s and discretionary spending not keeping pace with
economic growth. Second, the economy experienced two recessions during the 1968
to 1975 period which lowered GDP growth and automatically increased spending on
unemployment insurance and some means-tested programs such as food stamps.
Third, the introduction of Medicare in 1965 combined with the dramatic rise in per
capita health care costs due to new medical technologies, and the few incentives for
consumers and medical providers to control costs dramatically increased program
cost over the past 40 years. Lastly, the aging of the population and increased
longevity of the elderly over the past 40 years increased spending for Social Security
and Medicare.

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Mandatory Spending Beyond 2015
CBO’s projections for the next 10 years do not capture the upcoming retirement
of the large baby boom generation which will exert tremendous pressure on the
federal budget. The oldest of the baby boom generation will reach age 65 in 2011
while the majority will not reach 65 years until after 2015. Projections suggest that
Social Security spending could amount to 6.4% of GDP by 2080—an increase of 2%
of GDP for the 2004 level.4 If per capita health care costs continue to grow at their
present rate, Medicare could amount to 13.8% of GDP and Medicaid could amount
to 5.1% of GDP by 2080—an increase of 15% of GDP.5
Conclusions
Over the past 4 decades, mandatory spending has grown as a proportion of total
federal spending. And within the next decade, according to CBO projections, it will
account for about 60% of total federal spending. Furthermore, mandatory spending
has been growing relative to the economy whereas total federal spending has not. In
1962, Social Security accounted for half of all mandatory spending. Today, Social
Security accounts for 40% of mandatory spending and the two health
programs—Medicare and Medicaid— comprise about 36% of mandatory spending.
CBO projects that the two health programs could makeup almost half of mandatory
spending by 2015.
Knowing how mandatory spending and its components evolved and grew over
the past 40 years will prove useful if efforts to reduce the federal deficit include
reductions in mandatory spending. Three-quarters of mandatory spending is devoted
to Social Security, Medicare, and Medicaid. Means-tested entitlements such as
temporary assistance to needy families (TANF), SSI, food stamps, and housing
assistance currently account for 8.5% of mandatory spending. Limiting budget
reductions to the latter programs will not reduce the federal deficit by much and
focusing budget cuts on the big three programs could adversely affect the elderly or
the poor.
Nevertheless, most of the increases in federal spending have been occurring in
Medicare and Medicaid. Furthermore, over the next 75 years, the growth in
Medicare is projected to be the largest contributor to the large long-term fiscal
shortfall.6 Simply reducing the growth rates of Medicare and Medicaid would likely
compromise the goals of these two important programs. Consequently, fundamental
4 Board of Trustees, 2005 Annual Report of the Board of Trustees of the Federal Old-Age
and Survivors Insurance and Disability Insurance Trust Funds, Apr. 2005.
5 Board of Trustees, 2005 Annual Report of the Boards of Trustees of the Federal Hospital
Insurance and Federal Supplemental Medical Insurance Trust Funds, Mar. 2005; Alan J.
Auerbach, William G. Gale, and Peter R. Orszag “Sources of the Long-term Fiscal Gap,”Tax
Notes, May 24, 2004.
6 See CRS Report RS22232, The Government’s Long-term Fiscal Shortfall: How Much Is
Attributable to Social Security?, by Marc Labonte.

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reform of the health programs may be proposed to eliminate long-term fiscal strains
while preserving the goals of these programs.

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