Trends in Discretionary Spending
D. Andrew Austin
Analyst in Economic Policy
Mindy R. Levit
Analyst in Public Finance
June 10, 2009
Congressional Research Service
7-5700
www.crs.gov
RL34424
CRS Report for Congress
P
repared for Members and Committees of Congress

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Trends in Discretionary Spending

Summary
Discretionary spending is provided and controlled through appropriations acts, which fund many
of the activities commonly associated with such federal government functions as running
executive branch agencies, congressional offices and agencies, and international operations of the
government. Essentially all spending on federal wages and salaries is discretionary.
Federal spending in 2008 accounted for just over a fifth (21.0%) of the U.S. economy, nearly
equal to its average share of gross domestic product (GDP) since 1962. (Years denote federal
fiscal years.) Discretionary spending accounted for 47.2% of total outlays in 1962 and was the
largest component of federal spending until the mid-1970s. Since then, discretionary spending as
a share of federal outlays and as a percentage of GDP has fallen. The long-term fall in the share of
discretionary spending as a portion of total federal spending is largely due to rapid growth of
entitlement outlays and slower growth in defense spending relative to other federal spending in
past decades. Mandatory spending accounted for about 3% more of GDP than discretionary
spending in 2008. Extraordinary federal responses to financial turmoil in 2009 sharply increased
mandatory spending and reduced the share of discretionary spending.
Discretionary spending is often divided into defense, domestic discretionary, and international
outlays. Trends in those categories may indicate broad national priorities as reflected in federal
spending decisions. Defense and domestic discretionary spending compose nearly all of
discretionary spending. In 1962, discretionary spending equaled 12.3% of GDP, with defense
spending making up 9.0% of GDP. In 2008, total discretionary spending fell to 8.0% of GDP with
defense spending totaling 4.3% of GDP. However, over the last decade, military spending has
increased sharply. On average, from 1999 to 2008, defense outlays grew 5.5% per year in real
terms, while non-defense discretionary outlays grew 3.1% per year in real terms.
Non-defense discretionary outlays and budget authority can also be divided into security and non-
security spending. Dividing spending into security and non-security components, however,
presents many conceptual and practical difficulties. Some federal activities, such as Coast Guard
patrols, advance non-security and security interests. Furthermore, federal programs tasked with
non-security aims in normal times may respond to specific homeland security challenges. Non-
defense security discretionary budget authority increased sharply after Hurricane Katrina,
although changes in outlays have been less dramatic. Non-defense non-security outlays, which
have ranged between 3.0% and 3.5% of GDP since the mid-1980s, are projected to reach 4.3% of
GDP in 2010, in large part due to economic stimulus measures and other recession-related
spending.
The Obama Administration contends that many domestic priorities have been underfunded and
has proposed some cuts in defense spending. A fiscal stimulus package enacted February 17,
2009, the American Recovery and Reinvestment Act of 2009 (ARRA, H.R. 1, P.L. 111-5) is
projected to increase discretionary outlays by $308 billion over the period 2009-2019. The current
economic and financial turmoil, which has led to several major federal interventions, is projected
to increase non-defense spending over the next several fiscal years. Over the long term, projected
future growth in entitlement program outlays may put severe pressure on discretionary spending
unless policies changes are enacted or federal revenues are increased. This report will be updated
as events warrant.

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Contents
What Does Discretionary Spending Include?............................................................................... 1
Budget Authority and Outlays ............................................................................................... 1
Trends in Discretionary Spending................................................................................................ 2
How has the Composition of Discretionary Spending Changed? ............................................ 2
Discretionary Spending and National Priorities ........................................................................... 5
Discretionary Defense Spending ........................................................................................... 6
Discretionary Domestic Spending ......................................................................................... 6
Discretionary International Spending .................................................................................... 7
Discretionary Security and Non-Security Spending ............................................................... 7
What is “Homeland Security” or “Security” Spending? ................................................... 7
Trends in “Security” and “Non-Security” Discretionary Spending ................................... 8
Fiscal Stimulus and the FY2009 Budget .................................................................................... 11
The FY2010 Budget and Beyond .............................................................................................. 11
Discretionary Spending in the Long Term.................................................................................. 12

Figures
Figure 1. Components of Federal Spending ................................................................................. 3
Figure 2. Components of Federal Spending ................................................................................. 4
Figure 3. Discretionary Outlays By Type..................................................................................... 5
Figure 4. Discretionary Budget Authority By Type ...................................................................... 9
Figure 5. Discretionary Outlays By Type................................................................................... 10

Tables
Table 1. Categories of Federal Spending...................................................................................... 2
Table A-1. Listing of Items Included in Security Category......................................................... 14

Appendixes
Appendix. Definition of “Security” Spending............................................................................ 14

Contacts
Author Contact Information ...................................................................................................... 15

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Trends in Discretionary Spending

What Does Discretionary Spending Include?1
Discretionary spending is provided in, and controlled by, annual appropriations acts, which fund
many of the routine activities commonly associated with such federal government functions as
running executive branch agencies, congressional offices and agencies, and international
operations of the government.2 Essentially all spending on federal wages and salaries is
discretionary.3
Discretionary spending is often contrasted with mandatory, or direct, spending. Mandatory
spending includes federal spending on entitlement programs, the Supplemental Nutrition
Assistance Program (formerly known as the Food Stamps program), and other spending
controlled by laws other than appropriation acts.4 Spending levels for mandatory programs are
generally controlled by eligibility criteria and size of the eligible population.
Budget Authority and Outlays
The distinction between outlays and budget authority is important to understanding the federal
budget and, particularly, discretionary spending. Appropriations legislation, which controls
discretionary spending, grants budget authority to accomplish specific ends. Budget authority is
what federal agencies can legally spend. Budget authority has been compared to funds deposited
into a checking account, which then can be used for specified federal purposes. Outlays are
disbursed federal funds. Therefore, an outlay is not recorded until the federal government
disburses appropriated funds to purchase goods and services.
Table 1 illustrates the different categories of federal spending (i.e., mandatory and discretionary
spending) by contrasting the type of budget authority needed for specific purposes.
Outlay data are used to assess the macroeconomic effects of the federal budgets, while budget
analysis of specific federal programs is typically based on budget authority, because that is what
Congress controls directly. Congressional appropriations, which grant budget authority for
specific purposes, are not always tightly linked to changes in outlays in the following year. While
budget authority can be granted for a single year, some appropriations (such as for many military
construction projects) provide budget authority for multiple years, or indefinitely. Thus outlays
that flow from an appropriated sum might be spread over several fiscal years, implying that
budget authority totals will differ from outlay totals for a single fiscal year.5

1 This report was originally written by Philip Winters, who has retired from CRS.
2 Annual appropriations acts fall within the jurisdiction of the House and Senate Appropriations Committees.
3 Exceptions exist. For example, salaries for Members of Congress, the President, and federal judges are classified as
mandatory spending, as are essentially all federal retirement and disability costs. Direct spending is controlled by
committees with legislative jurisdiction.
4 For details, see CRS Report RL33074, Mandatory Spending Since 1962, by D. Andrew Austin and Mindy R. Levit.
5 While federal officials often have some discretion to choose how quickly appropriated funds are spent, they face
constraints imposed by legislation designed to protect Congress’s power of the purse. According to the Anti-Deficiency
Act, a federal official cannot spend government money beyond what is available through appropriations or a fund by
law. See General Accountability Office, Antideficiency Act Background, available at http://www.gao.gov/ada/
antideficiency.htm for code citations and explanations. The Congressional Budget Act and Impoundment Control Act
of 1974 (P.L. 93-344) limits the ability of federal officials to withhold or delay spending of appropriated funds without
(continued...)
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Table 1. Categories of Federal Spending
Budget Authority Provided by
Budget Authority Provided by

Law Other than Appropriation Acts
Appropriation Acts
Entitlement
Medicare
Appropriated Entitlements
Social Security
(e.g., veterans’ compensation, Medicaid, TANF)
Food Stampsa (with caveats)

Not an
Salaries for Members of Congress
Discretionary Spendingb
Entitlement
Mandatory non-entitlements
(defense, non-defense domestic discretionary, and
(e.g., Forest Service payments to states)
international)
Source: Compiled by CRS.
a. The Food Stamps program has been renamed the Supplemental Nutrition Assistance Program (SNAP).
b. Discretionary spending programs. See discussion in text.
Trends in Discretionary Spending
The composition of the federal budget has changed dramatically since the early 1960s. Over time,
the share of total discretionary spending in federal spending has fallen, while the share of
mandatory spending has increased. Discretionary spending accounted for 67.5% of total outlays
in 1962, but only 38.0% of total outlays in 2008.6 Mandatory spending, by contrast, rose from
26.1% of total outlays in 1962 to 53.7% in 2008.
In contrast to the longer term trends, between 1999 and 2008, discretionary spending grew more
quickly than mandatory spending. After falling for three decades between the late 1960s and the
late 1990s, discretionary spending increased 4.0% a year in real terms on average from 1999 to
2008. Over the same period, the share of discretionary spending as a proportion of federal outlays
grew from 33.6% in 1999 to 38.0% in 2008.
The economic recession that began in 2008 reduced incomes and increased unemployment, which
in turn increased the number of people eligible for income support programs and outlays on some
discretionary programs. Extraordinary federal responses to financial turmoil in 2009, however,
increased mandatory spending even more sharply, which reduced the share of discretionary
spending in federal outlays.
How has the Composition of Discretionary Spending Changed?
In 1962, discretionary spending comprised 67.5% of total outlays, with mandatory spending and
net interest accounting for 26.1% and 6.5%, respectively. Discretionary spending as a share of
total outlays reached its peak in 1963. By 2008, discretionary spending fell to 38.0% of total

(...continued)
Congressional approval.
6 Years in this report refer to federal fiscal years unless otherwise noted. Figures for FY1962-FY1968 from U.S. Office
of Management and Budget, Budget for FY2010, Historical Tables, available at http://www.whitehouse.gov/omb/
budget/Historicals/. Figures for FY1969 and beyond from the U.S. Congressional Budget Office, Historical Tables,
available at https://www.cbo.gov/budget/historical.shtml.
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outlays. Mandatory spending accounted for 53.7% of total outlays, with net interest at 8.3%in
2008. Figure 1 shows discretionary spending, mandatory spending, and net interest payments in
relation to total outlays since 1962.
Figure 1. Components of Federal Spending
As a percentage of total outlays, FY1962-FY2019
70%
Discretionary Spending
60%
Mandatory Spending
Net Interest
50%
40%
30%
20%
10%
0%
2
4
6
68
70
72
4
6
8
0
2
4
6
8
0
2
4
96
98
00
2
4
6
8
0
2
4
6
8
196
196
196
19
19
19
197
197
197
198
198
198
198
198
199
199
199
19
19
20
200
200
200
200
201
201
201
201
201
Fiscal Year

Source: Data for FY1962-1968 from OMB, Budget for Fiscal Year 2010, Historical Tables, Tables 3.2 and 8.7,
available at http://www.whitehouse.gov/omb/budget/Historicals/; Data for FY1969-FY2019 from CBO, Historical
Tables, available at http://www.cbo.gov/budget/historical.shtml and CBO Budget Projections data available at
http://www.cbo.gov/doc.cfm?index=10014. CBO baseline projections to the right of dotted line.
The peak estimated in mandatory spending in 2009 is largely attributable to the state of the
economy and enacted federal financial interventions, leading to an analogous spike in overall
spending. This also led to a decline in discretionary spending’s share of total outlays (from 38.0%
in 2008 to 31.7% in 2009), though discretionary spending is estimated to rise in nominal terms.
Over the longer term, discretionary spending’s share of total outlays is projected to decline
further. By 2019, discretionary spending is projected to fall to a historical low of 28.9% of total
outlays.
Another way to look at the changing composition of discretionary spending is to examine it as a
share of gross domestic product (GDP). Measuring budget components as a share of GDP
compares their size to the economy as a whole. Figure 2 shows components of federal spending
as a percentage of GDP since 1962.
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Figure 2. Components of Federal Spending
As a percentage of GDP, FY1962-FY2019
30%
Total Outlays
Mandatory Spending
Discretionary Spending
25%
Net Interest
20%
P
D
f G
o
e
g 15%
ta
rcen
e
P
10%
5%
0%
62
4
68
70
72
74
76
78
80
2
4
88
90
92
94
96
98
00
2
08
10
12
14
16
18
19
196
1966 19
19
19
19
19
19
19
198
198
1986 19
19
19
19
19
19
20
200
2004 2006 20
20
20
20
20
20
Fiscal Year

Source: Data for FY1962-1968 from OMB, Budget for Fiscal Year 2010, Historical Tables, Table 8.4, available at
http://www.whitehouse.gov/omb/budget/Historicals/; Data for FY1969-FY2019 from CBO, Historical Tables,
available at http://www.cbo.gov/budget/historical.shtml and CBO A Preliminary Analysis of the President’s Budget and
an Update of CBO’s Budget and Economic Outlook, Table 1-2, available at http://www.cbo.gov/doc.cfm?index=
10014&type=1. CBO baseline projections to the right of dotted line.
While discretionary spending was the largest component of federal spending until the mid 1970s,
mandatory spending now accounts for about 3% more of GDP than discretionary spending.
Medicare and Medicaid have continued to grow faster than overall federal spending, contributing
to the majority of the increase in mandatory spending over this period. Social Security spending,
the other large component of mandatory spending, has been relatively stable in the last decade
when measured as a share of GDP.
Similar to the trends shown in Figure 1, overall spending is estimated to peak in 2009 as a result
of the current economic situation and enacted federal financial interventions. However, unlike the
decline in discretionary spending as a percentage of total outlays, discretionary spending is
estimated to increase as a percentage of GDP as GDP falls in 2009 relative to 2008. Over the
longer term, discretionary spending’s share of GDP is projected to decline further. By 2019,
discretionary spending is projected to fall to a 6.4% of GDP, similar to the levels it reached in the
late 1990s and early 2000s.
Because of the decline in discretionary spending as a percentage of total outlays and as a
percentage of GDP and the resulting increase in the share of mandatory spending over time,
controlling the federal budget may have become more difficult for Congress. In other words,
because net interest payments and mandatory spending are set automatically, less money is
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available to allocate to other government agencies and programs unless revenues rise or Congress
modifies eligibility requirements and benefits of mandatory spending programs.
Discretionary Spending and National Priorities
Discretionary spending can be subdivided into defense, domestic, and international categories.
Such divisions may provide a rough indicator of national priorities as reflected in federal
spending decisions. Figure 3 shows these categories of discretionary spending as a share of GDP
over the period 1969-2008. Discretionary defense spending as a percentage of GDP fell from
8.7% in 1969 to 4.3% in 2008. Over the same period, domestic and international discretionary
spending have changed less dramatically as a percentage of GDP. Domestic discretionary
spending increased in the late 1970s but has since fallen, remaining closer to its post-1969
average.
Figure 3. Discretionary Outlays By Type
As a percentage of GDP, FY1969-FY2008
14%
Total Discretionary
Defense
12%
Domestic
International
10%
P
D
8%
f G
o
e
g
ta
6%
rcen
e
P
4%
2%
0%
69
71
73
75
77
79
1
83
85
89
91
93
95
97
99
1
03
05
19
19
19
19
19
19
198
19
19
1987
19
19
19
19
19
19
200
20
20
2007
Fiscal Year

Source: CBO, Historical Tables, available at http://www.cbo.gov/budget/historical.shtml.
Although discretionary spending has increased rapidly in the past half decade, spending in some
government departments and agencies has grown very slowly or has been cut, while spending in
other areas has expanded rapidly. Funding for defense and emergency and disaster management
increased after the events of September 11, 2001, and even more sharply in the wake of Hurricane
Katrina. In recent years, disaster funding has receded, allowing non-defense spending as a share
of GDP to fall as well.
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Discretionary Defense Spending
Defense spending increased sharply in the mid-1960s as the United States’ involvement in
Vietnam deepened. After large-scale withdrawals of American troops from Vietnam began in
1969, defense spending as a share of GDP fell for the next decade. The Soviet invasion of
Afghanistan prompted the Carter Administration, and then the Reagan Administration, to boost
military expenditures resulting in an increase in defense spending during the early 1980s. After
the Berlin Wall was opened in November 1989 and communist governments in central and
eastern Europe collapsed, defense spending as a share of GDP dropped to historically low levels,
providing what some called a “peace dividend.” Defense spending again rose after the attacks of
September 11, 2001, and wars in Afghanistan and Iraq began.
Increased defense spending accounted for 64.6% of the increase in discretionary spending in real
terms over the past decade. Discretionary defense spending increased 5.5% per year on average in
real terms between 1999 and 2008.7 Discretionary defense spending, which had fallen to 3.0% of
GDP by the late 1990s, rose sharply to 4.0% of GDP in 2005, and reached 4.3% of GDP in 2008.
General Mike Mullen, Chairman of the Joint Chiefs of Staff, has said that for future defense
spending he considers 4% of GDP “an absolute floor.”8 The trajectory of defense discretionary
spending depends in large part on the scale of future operations in Iraq and Afghanistan, as well
as on decisions about major procurement programs.
Some analysts have expressed some doubts about the sustainability of current defense budget
plans.9 However, others contend that defense expenditures as a proportion of GDP should be
expected to fall over the long term because the cost of defending the nation depends on factors
that are largely independent of economic growth. The Administration recently proposed roughly
$17 billion in spending cuts ($11.5 billion in cuts to discretionary programs) in 2010. Of those
cuts, roughly half are attributed to defense spending, including reductions or terminations in 16
programs.10
Discretionary Domestic Spending
Trends in domestic discretionary spending are less dramatic. Domestic spending supports the
largest number of federal agencies and programs, including science and technology research,
natural resources, energy, education, and numerous others. None of the individual programs
within the domestic discretionary category have approached 1% of GDP since 1962. Most of
these programs spent less than 0.5% of GDP during that period.

7 Defense discretionary spending includes enacted supplemental requests. OMB, Budget for Fiscal Year 2010,
Historical Tables, Table 8.2, available at http://www.whitehouse.gov/omb/budget/Historicals/.
8 New York Times, October 22, 2007. Transcript available at http://www.nytimes.com/2007/10/22/washington/
22mullen-text.html.
9 Testimony of CBO Assistant Director J. Michael Gilmore, in U.S. Congress, House Budget Committee, The 2009
Future Years Defense Program: Implications and Alternatives, hearings, 111th Cong., 1st sess., February 4, 2009;
Testimony of CRS Specialist in Defense Policy and Budgets Stephen Daggett, in U.S. Congress, House Budget
Committee, Sustainability of Current Defense Plans, hearings, 111th Cong., 1st sess., February 4, 2009.
10 U.S. Office of Management and Budget, Budget for Fiscal Year 2010, Terminations, Reductions, and Savings,
available at http://www.whitehouse.gov/omb/budget/fy2010/assets/trs.pdf.
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Domestic discretionary spending, 3.2% of GDP in 1969, rose to a peak of 4.8% in 1978.
Domestic non-defense discretionary spending’s share of GDP fell during the Reagan
Administration, reaching 3.1% of GDP in 1987.11 Since then it has fluctuated between 3.0% and
3.6% of GDP. Domestic discretionary spending in 2008 accounted for 3.4% of GDP.
Discretionary International Spending
Discretionary spending for international programs since 1969 has averaged 0.3% of GDP,
reaching its peak of 0.5% of GDP in 1975. Since that time, international spending has generally
trended downward. Between 2001 and 2008, spending on international programs rose from 0.2%
of GDP to 0.3% of GDP. The majority of the funding in this category in recent times has been
devoted to diplomatic missions, foreign aid, and international finance.
Discretionary Security and Non-Security Spending
Non-defense discretionary outlays and budget authority can also be divided into security and non-
security spending. Some discussions of national spending priorities in recent years have focused
on trends in discretionary security and non-security spending. Unlike the division of discretionary
spending into the categories of domestic, international, and defense, which has become routine in
budget analyses, no standard method of dividing security spending from non-security spending
has been universally accepted.
What is “Homeland Security” or “Security” Spending?
Any division of spending into security and non-security components would likely present
conceptual and practical difficulties.12 Moreover, the widely used term “homeland security,”
which comprises some but not all non-defense security spending, does not already readily
translate in budgetary categories.
Most homeland security spending, according to Administration analyses, takes place in the
Department of Defense, the Department of Homeland Security, and the Department of Energy.
Many other federal agencies spend at least some portion of their budget on homeland security
tasks, so that a significant amount of homeland security spending takes place in agencies and
programs whose primary focus is not security oriented. Some federal activities, such as Coast
Guard patrols and research at the Centers for Disease Control, advance non-security and security
interests. Moreover, some federal programs tasked with non-security aims in normal times may
respond to specific homeland security challenges. These issues complicate budgetary analyses of
homeland security spending.
According to law, the President’s budget submission must report homeland security spending.13 In
addition, the Bush Administration budgets presented summaries of discretionary funding that split

11 For a summary of Reagan-era spending changes, see David Stockman, The Triumph of Politics (New York:
Harper&Row, 1986), pp. 401-411.
12 For a discussion of defining security or homeland security, see U.S. Congressional Budget Office, “Federal Funding
for Homeland Security: An Update,” Economic and Budget Issue Brief, July 20, 2005.
13 The Homeland Security Act of 2002 (P.L. 107-296) requires this report, which supersedes a report on anti-terrorism
activities mandated by the National Defense Authorization Act of 1998 (P.L. 105-85).
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out security spending (defined as “Department of Defense, Homeland Security activities
Government-wide; and International Affairs) from non-security spending.14 This definition,
drawn more widely than “homeland security,” includes some activities not closely tied to security
concerns (such as Army Corps of Engineers navigation projects and military bands), but excludes
other spending tied to security activities (such as veterans’ benefits and services). The “security
spending” budget concept, however, does not appear in budget documents issued by the Obama
Administration.
OMB’s security spending estimates are based on reports from 32 agencies with homeland security
responsibilities. Those agencies provide OMB with budget reports that provide a level of detail
not available in publicly available data. For the purposes of this report, security spending is
defined using federal subfunction- and account-level data from the OMB Public Budget
Database. Table A-1 specifies which items are included in this definition of security spending.
This definition of security spending has the advantage that it can be applied over a longer period
of time, providing historical context for current spending decisions.15
Trends in “Security” and “Non-Security” Discretionary Spending
Figure 4 shows trends in defense discretionary spending, non-defense security discretionary
spending, and non-security discretionary spending since 1976 in terms of budget authority, while
Figure 5 shows the same categories in terms of outlays. Because budget authority can translate
into outlays that stretch over several years, changes in outlays tend to be more gradual. Non-
security discretionary spending, which had been about 6% of GDP in the late 1970s, dropped
sharply in the early 1980s before stabilizing around 3% of GDP after 1986. Changes in non-
defense security discretionary spending have been less dramatic over the same period.
The Obama Administration contends that many domestic priorities have been underfunded and
has proposed some cuts in defense spending.16 Previously, the Bush Administration had said that
holding down growth in “non-security” discretionary spending was a major fiscal priority.17 Non-
security discretionary outlays fell from 3.2% of GDP in 2004 to 2.8% of GDP in 2008, after
having increased earlier in the decade. Non-defense security discretionary budget authority
increased sharply after Hurricane Katrina hit in 2005. Changes in outlays, as shown in Figure 5,
have been less dramatic, in large part because the recovery in the Gulf Coast has lasted longer
than many expected.18

14 For details, see U.S. Office of Management and Budget, Budget of the U.S. Government, FY2009, Tables S-2 and S-
4, and the “Homeland Security Funding Analysis” chapter in the Analytic Perspectives volume. In circular A-11, OMB
defines federal homeland security activities as those that “focus on combating and protecting against terrorism, and that
occur within the United States and its territories, or outside of the United States and its territories if they support
domestically-based systems or activities. Such activities include efforts to detect, deter, protect against, and, if needed,
respond to terrorist attacks.”
15 OMB historical data from different years are not necessarily fully comparable due to changes in accounting
treatment, redefinition of activity areas, changes in the structure of federal agencies, and for other technical reasons.
16 For example, the Administration states that “now is precisely the time for the country to make the long overdue
investments that will fundamentally transform our economy so that we can compete and thrive in the decades ahead.”
U.S. Office of Management and Budget, A New Era of Responsibility: Renewing America’s Promise,” February, 2009.
17 U.S. Office of Management and Budget, Budget of the U.S. Government, FY2009, “The Budget Message of the
President,” p. 1.
18 More details on Homeland Security funding can be found in CRS Report RL34482, Homeland Security Department:
FY2009 Appropriations, coordinated by Jennifer E. Lake and Blas Nuñez-Netoo.
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Figure 4. Discretionary Budget Authority By Type
As a percentage of GDP, FY1976-2014

CRS-9

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Figure 5. Discretionary Outlays By Type
As a percentage of GDP, FY1976-2014


CRS-10

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Trends in Discretionary Spending

Fiscal Stimulus and the FY2009 Budget19
Soon after the 111th Congress was sworn in, work began on a major fiscal stimulus package. The
resulting measure, the American Recovery and Reinvestment Act of 2009 (ARRA, H.R. 1, P.L.
111-5), was enacted on February 17, 2009. The $787.2 billion package includes, according to
CBO, more than $300 billion in discretionary spending over the 2009-2019 period. An expected
$35 billion of those funds will be spent in 2009, and a projected $110 billion will be spent in
2010.20 ARRA includes funds for discretionary spending on education initiatives, support for state
governments, public housing, infrastructure, and health care.
After the Presidents’ Day recess, Congress began work on 2009 funding for programs in regular
appropriations bills that had not passed in the fall. Most non-defense discretionary spending
programs had operated under a continuing resolution that expired March 6, 2009. The House
passed an omnibus bill (H.R. 1105) on February 25, 2009, on a 245-178 vote. Passage in the
Senate was delayed, requiring a stop-gap measure (H.J.Res. 38, P.L. 111-6) to provide funding
until March 11, 2009. The Senate passed the bill on a voice vote on March 10, 2009, and the
President signed it the next day, which completed regular 2009 appropriations.
The FY2010 Budget and Beyond
Budgetary priorities may change as the new Administration and Congress confront ongoing
financial and economic challenges. Given the current state of the economy, significant increases
in discretionary spending, at least over the next several years, are likely.
In response to economic downturn, federal spending has automatically increased as more people
have become eligible for income support programs and revenues have decreased as incomes of
households and profits of many firms have fallen. These “automatic stabilizers” have a
countercyclical effect, although most macroeconomists doubt that they would be themselves
sufficient to stave off slow growth for the next few years.
In addition to “automatic stabilizers,” the federal government has responded to this financial
turmoil with an extraordinary set of measures aimed at housing and credit markets. In February
2008, Congress enacted a $152 billion package (P.L. 110-185, Economic Stimulus Act of 2008) to
stimulate consumption that sent refunds to taxpayers and let firms depreciate their capital more
quickly. Later in the year, the Federal Reserve created a panoply of lending facilities to provide
financial institutions with loans in exchange for various types of collateral. On October 3,
Congress passed the Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343),
which authorized the Treasury Secretary to use $700 billion (subject to certain Congressional
restrictions and notifications) to intervene in financial markets or to inject capital into key
financial institutions as part of a Troubled Assets Relief Program (TARP).

19 For more information on budget issues, see CRS Report R40088, The Federal Budget: Current and Upcoming
Issues, by D. Andrew Austin and Mindy R. Levit.
20 U.S. Congressional Budget Office, Cost Estimate For the Conference Agreement For H.R. 1., February 13, 2009,
available at http://cbo.gov/ftpdocs/99xx/doc9989/hr1conference.pdf.
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The ultimate costs of these responses and their budgetary impact will depend on how the
economy performs, how well firms with federal credit guarantees weather future financial shocks,
and whether the government receives positive returns on its asset purchases.
New shocks to the financial system and the economy may present Congress with new demands
for federal responses. Mandatory spending tied to means-tested social programs has been
increasing due to rising unemployment, while federal revenues will likely fall as individuals’
incomes drop and corporate profits sink. Funding requests for military operations in Iraq and
Afghanistan will likely continue. New policies and requests, if implemented, could affect
discretionary spending levels in 2009 and beyond.
Discretionary Spending in the Long Term
Congress can change, continue, or reverse trends in discretionary spending directly through
annual appropriations decisions, or indirectly by modifying certain federal budget procedures,
such as reinstating statutory limits on discretionary spending. If discretionary spending were held
constant in real terms, as the CBO baseline presumes, then discretionary spending per capita
would decrease as population grows and it would shrink as a share of GDP as the economy
grows. On average the U.S. population grew 1% a year and per capita GDP grew 2.25% per year
from 1962 to 2005.21 If those trends were to persist, then holding discretionary spending constant
in real terms implies per capita discretionary spending would shrink by 1% a year and
discretionary spending as a share of the economy would shrink by 3.25% per year.
Due to the current economic downturn, large-scale fiscal stimulus and aggressive spending
measures intended to mitigate systematic risks in financial markets may be needed to limit serious
damage to the economy. Many economists and policy makers have stated that once economic
recovery begins, that serious efforts should be made to address budget deficits and longer term
fiscal imbalances.22
Over the long run, growth in entitlement spending will present severe fiscal challenges. Recent
research on long-term fiscal challenges has focused on continued increases in the per beneficiary
cost of health care, as well as the more predictable demographic changes that will occur as the
baby boom generation retires. Projections from a variety of sources predict that spending on
Medicare and Social Security will increase sharply as a share of GDP in coming decades.23 CBO
projects that Medicare will expand from 5.6% of GDP in 2030 to 14.8% in 2082 and that Social
Security will grow from 6.1% of GDP in 2030 to 6.4% of GDP by 2082. Federal Medicaid
outlays, 1.6% of GDP in 2008, are projected to reach 17.6% of GDP in 2050.24

21 These figures based on CRS calculations derived from CBO and Census Bureau data.
22 The Obama Administration budget submission stressed that “as we come out of this recession, we must return to the
path of fiscal responsibility.” U.S. Office of Management and Budget, A New Era of Responsibility: Renewing
America’s Promise,” February, 2009, p. 14; Testimony of Ben S. Bernanke, Chairman of the Federal Reserve Board of
Governors, in U.S. Congress, House Committee on the Budget, “Current Economic And Financial Conditions and the
Federal Budget,” 111th Cong., 1st sess., June 3, 2009.
23 See U.S. Congressional Budget Office, The Long-Term Budget Outlook, December 2007; point 10 of the United
States of America—2006 Article IV Consultation, Concluding Statement of the IMF Mission, May 31, 2006; and CRS
Report RL33623, Long-Term Measures of Fiscal Imbalance, by D. Andrew Austin.
24 U.S. Congressional Budget Office, The Long-Term Budget Outlook: An Update, December 2007.
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Social Security, Medicare, and Medicaid outlays as a proportion of GDP are projected to equal or
exceed the present share of federal revenues as a proportion of GDP (17.7% in 2008) sometime
after the middle of the 21st century. Maintaining current levels of discretionary spending would
then require either substantial tax increases or major changes in those entitlement programs.
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Appendix. Definition of “Security” Spending
Table A-1 lists parts of the federal government whose funding is (for the purposes of this report)
defined as security spending. This listing uses OMB function and subfunction codes along with
specific account codes to identify agencies and programs that match, at least in large part, the
definition of security spending put forth in the President’s FY2009 budget submission. As noted
in the text, some activities such as U.S. Coast Guard harbor patrols may serve security and non-
security ends. Some agencies, such as the Centers for Disease Control, perform some tasks that
are closely associated with security concerns as well as other tasks that are not. Finally, some
grant programs designed to support non-security aims have been used to address security
concerns such as recovery from the events of September 11, 2001.
Table A-1. Listing of Items Included in Security Category
Used in CRS analysis of discretionary spending
Within
Bureau or Purpose
Subfunction
code Departments
(within Dept.)
Account
Description
51
Department of Defense-Military
All
All
All

53
Atomic energy defense activities
All
All
All

54 Defense-related
activities
All
All
All

152 International
security
assistance All
All
All

153 Conduct of foreign affairs
All
All
All

401 Ground transportation
Dept. of
Transportation Security


Transportation
Agency



Fed. Motor Carrier Safety
8274 Border
Admin.
Enforcement
Program
402 Air transportation
Dept. of Homeland
Transportation Security


Security
Agency


Dept. of Homeland
Security, Enforcement, &
508

Security
Investigations:
Transportation Security
403 Water transportation
Dept. of Homeland
U.S. Coast Guard
247
Port safety
Security
development

Dept.
of
Maritime Administration
1769
National
Transportation
Defense Tank
Vessel
Construction
Program
451 Community development
Dept. of Homeland
All All


Security
453 Disaster relief and insurance
Dept. of Homeland
All All


Security
551 Health care services
Dept. of Homeland
All All


Security
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Within
Bureau or Purpose
Subfunction
code Departments
(within Dept.)
Account Description
552 Health research & training
Dept. of Health and
Centers for Disease Control 943 Disease
Human Services
and Prevention
Control,
Research, and
Training
751 Federal law enforcement
All All



activities
754 Criminal Justice assistance
Dept. of Homeland
All


Security
809 Deductions for Offsetting
Dept. of Homeland
All


Receipts
Security
804 General property and records
Dept. of Homeland
Federal Protective Service
542

management
Security
908 Other interest accounts
Dept. of Homeland
General Fund Proprietary
143500

Security
Interest Receipts, nec
Source: Created by CRS, January 15, 2009.
Note: The Security Spending category defined here will differ from Security spending categories developed by
OMB and CBO, which are based on more detailed budget data.

Author Contact Information

D. Andrew Austin
Mindy R. Levit
Analyst in Economic Policy
Analyst in Public Finance
aaustin@crs.loc.gov, 7-6552
mlevit@crs.loc.gov, 7-7792




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