Mandatory Spending Since 1962
D. Andrew Austin
Analyst in Economic Policy
Mindy R. Levit
Analyst in Public Finance
February 16, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33074
CRS Report for Congress
P
repared for Members and Committees of Congress

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Mandatory Spending Since 1962

Summary
Federal spending is often divided into three categories: discretionary spending, mandatory
spending, and net interest. Mandatory spending includes federal government spending on
entitlement programs as well as other budget outlays controlled by laws other than appropriation
acts. Entitlement programs such as Social Security and Medicare make up the bulk of mandatory
spending. Other mandatory spending programs include Temporary Assistance for Needy Families
(TANF), Supplemental Security Income (SSI), unemployment insurance, some veterans’ benefits,
federal employee retirement and disability, Supplemental Nutrition Assistance Program (SNAP),
and the earned income tax credit (EITC). Discretionary spending is provided and controlled
through appropriations acts.
In 2009, mandatory spending accounted for over half of total federal spending and almost a
seventh of gross domestic product (GDP). Social Security accounted for nearly a fifth of federal
spending. Medicare and the federal share of Medicaid, the fastest growing components of
mandatory spending, together accounted for over a fifth of federal spending. Those three
programs, therefore, made up over 40% of federal spending.
The composition of mandatory spending has changed significantly over the past 40 years. In
1962, before the 1965 creation of Medicare and Medicaid, mandatory spending was less than
30% of all federal spending. At that time, Social Security accounted for about half of all
mandatory spending. By 2009, mandatory spending composed 60% of total federal spending.
Medicare and Medicaid grew from almost nothing in 1965 to about 5.3% of GDP in 2009.
Similarly, Social Security grew from 2.5% of GDP in 1962 to 4.8% in 2009.
Federal spending has outrun federal revenues for the last eight fiscal years. In the long term,
projections suggest that if current policies remain unchanged, the United States faces a major
fiscal imbalance, largely due to rising health care costs and impending Baby Boomer retirements.
Medicare and the federal portion of Medicaid spending is projected to expand from 5.3% of GDP
in 2009 to 17.8% in 2083 according to a Congressional Budget Office (CBO) extended baseline
projection. Social Security is projected to grow from 4.8% of GDP in 2009 to 6.2% of GDP by
2083. Thus, funding health care costs while the U.S. population ages promises to strain federal
budgets in coming decades.
Because discretionary spending is a smaller proportion of total federal outlays compared to
mandatory spending, some budget experts contend that any significant reductions in federal
spending must include cuts in entitlement spending. Other budget and social policy experts
contend that cuts in entitlement spending could compromise their goals: the economic security of
the elderly and the poor. Proposals for fundamental reform may strive to ease long-term fiscal
strains while preserving the social protection goals of these programs.
This report will be updated annually.

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Mandatory Spending Since 1962

Contents
Overview .................................................................................................................................... 1
What Does Mandatory Spending Include? ................................................................................... 1
Mandatory Spending Trends Over Time ...................................................................................... 2
Changes in the Composition of Mandatory Spending............................................................. 8
Mandatory Spending and the Economy ................................................................................. 9
Why Has Mandatory Spending Risen? ...................................................................................... 11
Mandatory Spending Beyond 2020............................................................................................ 13
Conclusion................................................................................................................................ 13

Figures
Figure 1. Mandatory Spending and Offsetting Receipts As a Percentage of Total Outlays
(FY1962-FY2020) ................................................................................................................... 4
Figure 2. Components of Mandatory Spending As a Percentage of Federal Spending
(FY1969-FY2020) ................................................................................................................... 8
Figure 3. Mandatory Spending Before Offsetting Receipts As a Percentage of GDP
(FY1969-FY2020) ................................................................................................................. 10
Figure 4. Discretionary Spending As a Percentage of GDP (FY1969-FY2009) ......................... 12

Tables
Table 1. Mandatory Spending in Detail........................................................................................ 5

Contacts
Author Contact Information ...................................................................................................... 14
Acknowledgments .................................................................................................................... 14

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Mandatory Spending Since 1962

Overview
Mandatory spending includes federal government spending on entitlement programs as well as
other budget outlays controlled by laws other than appropriation acts. Entitlement programs such
as Social Security and Medicare make up the bulk of mandatory spending. Congress sets
eligibility requirements and benefits for entitlement programs. Therefore, if the eligibility
requirements are met for a specific mandatory program, outlays are made automatically. Other
mandatory spending programs include Temporary Assistance for Needy Families (TANF),
Supplemental Security Income (SSI), unemployment insurance, certain veterans’ benefits, federal
employee retirement and disability, Supplemental Nutrition Assistance Program (SNAP), and the
earned income tax credit (EITC).1 Mandatory spending also includes many smaller budgetary
items, such as salaries of Members of Congress, the President, and federal judges.
In 2009, mandatory spending—totaling 14.7% of gross domestic product (GDP)—overshadowed
discretionary spending’s 8.7% share of GDP.2 In addition, federal net interest payments accounted
for 1.3% of GDP. Nearly 60% of all federal spending in 2009 (total federal spending represented
24.7% of GDP) was spent on mandatory programs. Social Security, Medicare, and the federal
share of Medicaid alone composed over 41% of all federal spending.
Due to the current economic conditions and subsequent federal financial interventions, mandatory
spending was higher than its historical levels (as a percentage of GDP) in 2009. However,
mandatory spending is projected to fall between 2010 and 2015. Following these declines, the
Congressional Budget Office (CBO) projects that mandatory spending will continue to account
for an ever-increasing share of GDP in the second half of the decade. Mandatory spending,
according to CBO current-law projections, will be about 13.3% of GDP in 2020.
Mandatory spending plays a major role in larger fiscal trends. During economic downturns,
government revenues fall and expenditures rise as more people become eligible for mandatory
programs such as unemployment insurance and income support programs, causing deficits to
increase or surpluses to shrink. These effects, known as “automatic stabilizers,” provide a
countercyclical fiscal stimulus in the short run without the need for new legislative action.
Income support programs accounted for 16.6% of mandatory spending in 2009.
CBO baseline projections of mandatory spending, which extend to 2020, as well as extended
baseline projections through 2083 are used to consider the long-term consequences of current
mandatory spending policies.
This report looks at mandatory spending and how it has grown over time relative to total federal
spending and the size of the U.S. economy.
What Does Mandatory Spending Include?
Mandatory spending is controlled by laws other than appropriations acts. Such laws usually
specify an obligation on the part of the federal government to spend funds for certain purposes. In

1 The Food Stamps program has been renamed the Supplemental Nutrition Assistance Program (SNAP).
2 Years in this report refer to federal fiscal years unless otherwise noted.
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Mandatory Spending Since 1962

most cases, the authorizing law requires, in the form of an eligibility criteria and a benefit
formula, payment to an individual or entity (e.g., a state). Mandatory spending typically is
provided in permanent or multi-year appropriations contained in the authorizing law, and
therefore, the funding becomes available automatically each year, without legislative action by
Congress. In contrast, discretionary spending is provided and controlled through the annual
appropriations process.3 Net interest payments, which are automatically authorized, are often
reported as a separate category.
A portion of entitlement spending, such as for Medicaid and certain veterans’ programs, is funded
in annual appropriations acts. Such entitlement spending is referred to as appropriated
entitlements. The level of spending for appropriated entitlements, like other entitlements, is based
on the benefit and eligibility criteria established in law. The amount of budget authority provided
in appropriations acts for these specific programs is based on meeting projected spending levels.
Since the authorizing legislation effectively determines the amount of budget authority required,
the Budget Enforcement Act (BEA) of 1990 (P.L. 101-508) classified appropriated entitlement
spending as mandatory.4
Not all mandatory spending funds entitlement programs. For example, the Forest Service makes
some payments to states that are mandatory, but are not entitlements. Some agencies gained
authority to sign contracts or create obligations in other ways, which GAO has termed
“backdoor” spending authority.5 Those obligations become part of mandatory spending unless
limited by the BEA or other budget legislation. As noted above, salaries of Members of Congress,
the President, and federal judges are also deemed mandatory.
Mandatory spending is offset by certain fees and payments, which are counted as offsetting
receipts rather than as revenue. Market-like charges, such as Medicare Part A deductibles and
Medicare Part B premiums, are considered offsetting receipts. Some intragovernmental transfers,
such as agency rents paid to the General Services Administration (GSA), are also counted as
offsetting receipts by the recipient agency. Payments by Medicare beneficiaries and the federal
government’s tax and pension contributions in its role as an employer comprise the largest
component of offsetting receipts within the mandatory spending category.
Mandatory Spending Trends Over Time
Mandatory spending has taken up a larger and larger share of the federal budget over time.
Mandatory spending, minuscule before the Great Depression, grew over time with enactment of
the Social Security Act of 1935 (P.L. 74-271) and a generation later with the Medicare Act of
1965 (P.L. 89-97).6 In 1962, three years before the creation of Medicare and Medicaid, less than
30% of all federal spending was mandatory. At that time, Social Security accounted for about half

3 For more information on discretionary spending trends, see CRS Report RL34424, Trends in Discretionary Spending,
by D. Andrew Austin and Mindy R. Levit.
4 For a discussion of procedural issues, see CRS Report RS20129, Entitlements and Appropriated Entitlements in the
Federal Budget Process, by Bill Heniff Jr.
5 U.S. General Accounting Office, Budget Issues: Inventory of Accounts With Spending Authority and Permanent
Appropriations, GAO/AIMD-96-79, May 31, 1996.
6 Officially titled “Social Security Amendments of 1965.”
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Mandatory Spending Since 1962

of all mandatory spending.7 In the mid-1970s, growth of mandatory spending as a share of total
federal spending slowed. During part of the 1980s, mandatory spending declined as a share of
total federal spending. Since then, mandatory spending has increased its share of federal spending
at a gradual pace.
Figure 1 shows historical trends in mandatory spending between 1962 and 2009 and CBO’s
baseline projections for these components to 2020, expressed as a percentage of total federal
spending. The CBO baseline, intended as a neutral starting point for the estimation of budgetary
effects of legislative changes, is not a “best guess” of the likely future trajectory of the economy.8
CBO baseline projections, according to most budget experts, may tend to understate the growth of
discretionary spending as a share of total federal spending, and may overstate the future growth of
mandatory spending.9

7 Offsetting receipts are not taken into account for the cost of individual programs in this and subsequent calculations in
order to provide comparability to the figures in Table 1. In 2009, offsetting receipts totaled $195 billion or 9% of total
programmatic mandatory spending.
8 While some budget enforcement legislation constraining the computation of CBO baseline estimates has expired,
CBO has continued to follow those legislative guidelines.
9 CBO baseline projections start with Congress’s most recent budgetary decisions and then assume that no policy
changes will be made over the projection period. In the baseline, CBO assumes current laws continue unchanged for
mandatory programs, while discretionary spending is assumed to increase at the rate of inflation over the projection
period. However, in the past, non-defense discretionary spending has grown roughly as fast as overall economic
growth, a growth rate greater than inflation.
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Mandatory Spending Since 1962

Figure 1. Mandatory Spending and Offsetting Receipts
As a Percentage of Total Outlays (FY1962-FY2020)
70%
60%
Mandatory Spending Before
Offsetting Receipts
50%
Mandatory Spending
s
Including Offsetting Receipts
y 40%
tla
u
l O
a
Tot 30%
of
%
20%
10%
0%
62
64
66
8
70
72
4
6
8
0
2
4
6
8
0
2
4
6
8
0
2
4
6
8
0
2
4
6
8
20
19
19
19
196
19
19
197
197
197
198
198
198
198
198
199
199
199
199 199
200
200 200
200 200 201 201 201 201 201 20
Fiscal Year

Source: Data for FY1962-1968 from OMB, Budget for Fiscal Year 2011, Historical Tables, Tables 1.3 and 8.5,
available at: http://www.whitehouse.gov/omb/budget/fy2011/assets/hist.pdf; Data for FY1969-FY2020 from CBO,
Historical Tables, available at: http://www.cbo.gov/budget/historical.shtml and CBO Budget Projections data
available at: http://www.cbo.gov/budget/budproj.shtml. CBO treats some offsetting receipts, especially regarding
Medicare, differently than OMB. CBO baseline projections to the right of dotted line.
Mandatory spending was about a quarter of total federal spending in 1962 (nearly a third if
offsetting receipts are excluded). In 1968, mandatory spending began growing relative to total
federal spending and by 1975 accounted for about 45% of total spending (about half before
offsetting receipts). From the mid-1980s through 1990, mandatory spending’s share in total
spending remained relatively steady, before starting to grow again after 1990. In 2009, mandatory
spending accounted for 59.5% of total spending (or 65% before offsetting receipts). The spike
between 2008 and 2009 was largely due to increased outlays related to federal financial
interventions and the economic downturn. Though mandatory spending falls between 2010 and
2012 as the economy recovers, the upward trajectory resumes thereafter largely due to rising
healthcare costs.
Table 1 presents components of mandatory spending in 2009 and 2010 (estimated) and CBO
baseline projections for mandatory spending in 2020.

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Table 1. Mandatory Spending in Detail
FY2020 (CBO Baseline

FY2009
FY2010 (Estimated)
Projections)
% of
% of
% of
Mandatory
% of
Mandatory
% of
Mandatory
% of
Category $Billions
Spendinga
GDP $Billions
Spendinga
GDP $Billions
Spendinga
GDP
Social Security
678 32.4% 4.8% 700 36.0%
4.8%
1,170 38.9%
5.2%
Medicareb
499 23.8% 3.5% 528 27.2%
3.6%
1,038 34.5%
4.6%
Medicaid
251 12.0% 1.8% 280 14.4%
1.9% 458 15.2%
2.0%
Income Support
348 16.6% 2.4% 400 20.6% 2.7% 283 9.4% 1.3%
SSI 45
2.1%
0.3%
48
2.5%
0.3%
61
2.0%
0.3%
EITC and child tax credits
67
3.2%
0.5%
72
3.7%
0.5%
45
1.5%
0.2%
Unemployment comp.
119
5.7%
0.8%
133
6.8%
0.9%
56
1.8%
0.2%
SNAP (Food Stamps)
56
2.7%
0.4%
70
3.6%
0.5%
61
2.0%
0.3%
Family support
26
1.3%
0.2%
28
1.4%
0.2%
25
0.8%
0.1%
Child nutrition
16
0.8%
0.1%
17
0.9%
0.1%
25
0.8%
0.1%
Foster care
7
0.3%
0.0%
7
0.4%
0.1%
9
0.3%
0.0%
Making Work Pay and Other Tax
13 0.6%
0.1% 24 1.2%
0.2% *
Credits
Civilian and Military Retirement 138
6.6%
1.0%
141
7.3%
1.0%
188
6.3%
0.8%
Federal civilian
80
3.8% 0.6% 83 4.2% 0.6% 113 3.8% 0.5%
Military 50
2.4%
0.4%
51
2.6%
0.3%
63
2.1%
0.3%
Other 8
0.4%
0.1%
8
0.4%
0.1%
12
0.4%
0.1%
Veterans 50
2.4%
0.3%
57
2.9%
0.4%
79
2.6%
0.4%
Income Security
46
2.2%
0.3%
49
2.5%
0.3%
63
2.1%
0.3%
Other 4
0.2%
0.0%
8
0.4%
0.1%
16
0.5%
0.1%
Other Programs 325
15.5%
2.3%
22
1.2%
0.2%
92
3.1%
0.4%
Net Subsidy Costs for GSEs
91
4.4%
0.6%
21
1.1%
0.1%
3
0.1%
0.0%
CRS-5

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FY2020 (CBO Baseline

FY2009
FY2010 (Estimated)
Projections)
% of
% of
% of
Mandatory
% of
Mandatory
% of
Mandatory
% of
Category $Billions
Spendinga
GDP
$Billions
Spendinga
GDP
$Billions
Spendinga
GDP
TARP c 152
7.2%
1.1%
-67
-3.4%
-0.5%
*


Agriculture
17
0.8%
0.1%
19
1.0%
0.1%
17
0.6%
0.1%
MERHCFd 8
0.4%
0.1%
8
0.4%
0.1%
17
0.6%
0.1%
Higher Educatione -18
-0.9%
-0.1%
-10
-0.5%
-0.1%
10
0.3%
0.0%
Universal Service Fund
8
0.4%
0.1%
8
0.4%
0.1%
9
0.3%
0.0%
CHIP 8
0.4%
0.1%
9
0.5%
0.1%
6
0.2%
0.0%
Social services
5
0.2%
0.0%
5
0.3%
0.0%
6
0.2%
0.0%
Deposit insurance f 23
1.1%
0.2%
-4
-0.2%
0.0%
-5 -0.2%
0.0%
Other 32
1.5%
0.2%
33
1.7%
0.2%
30
1.0%
0.1%
Offsetting Receipts
-195 -9.3% -1.4% -183 -9.4 -1.3% -302 -10.0%
-1.3%
Medicare -74
-3.5%
-0.5%
-78
-4.0%
-0.5%
-150
-5.0%
-0.7%
Employer’s share of employee
-56 -2.7%
-0.4% -60 -3.1%
-0.4%
-83 -2.8%
-0.4%
retirement
Other -65
-3.1%
-0.5%
-45
-2.3%
-0.3%
-68
-2.3%
-0.3%
Total Mandatory Spending
2,094 100.0% 14.7% 1,946 100.0% 13.3% 3,008 100.0% 13.3%
Medicare Spending Net of Offsetting
425 20.3% 3.0% 450 23.1%
3.1% 888 29.5%
3.9%
Receipts
Source: CBO, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010, Budget Projections Data, available at http://www.cbo.gov/ftpdocs/108xx/doc10871/
01-26-Outlook.pdf. See source for notes. * Indicates that an outlay level is between -$500 million and $500 million. Some items do not sum to totals due to rounding.
a. Denominator includes offsetting receipts.
b. Excludes offsetting receipts.
c. A negative outlay level for TARP in FY2010 is recorded to reflect changes in economic and market conditions that have lowered CBO’s estimates of the cost of the
TARP program over its lifetime. CBO now estimates the net cost of TARP over its lifetime to be $99 billion. With actual outlays of $152 billion in FY2009, the CBO
baseline now reflects negative net TARP outlays for the FY2010-FY2019 period of $53 billion (negative net outlays of $67 billion in FY2010 and positive outlays of $14
billion between FY2011-FY2019).
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d. MERHCF is the Department of Defense Medicare-Eligible Retiree Health Care Fund, including TRICARE For Life.
e. The estimated mandatory outlays for higher education reflect student loan and aid programs. As a result of revenues (i.e., proceeds from borrowers) exceeding the
expenses (i.e., payments to lenders), the actual outlay level in FY2009 for these programs was negative. For FY2010 negative outlays are again projected, but as the
economy recovers, positive outlays are expected for FY2011.
f.
Net costs for deposit insurance are recorded on a cash basis. Positive outlays for FY2009 reflect payments made by the government to cover losses for failing banks.
Projected negative outlays for FY2010 and FY2011 indicate federal revenue from insurance premiums and asset sales are anticipated to exceed any expenditures
related to failing banks.
CRS-7

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Mandatory Spending Since 1962

In 2009, total mandatory spending increased by 31% in dollar terms over 2008, primarily due to
the economic downturn and federal financial interventions, including assistance provided in the
Troubled Asset Relief Program (TARP) and aid to the GSEs (Fannie Mae and Freddie Mac). The
majority of the impact of the enacted federal financial intervention programs should largely affect
outlays in 2009 for TARP and between 2009 and 2013 for the GSE assistance. In addition, outlays
for income security programs, like unemployment compensation and SNAP, also increased in
2009 and are expected to continue at elevated levels through 2011. By 2012, outlays for the these
programs are projected to return to close to their 2008 levels (as a percentage of GDP) as the
economy is expected to recover, lessening the reliance on these “automatic stabilizers.” However,
mandatory spending as a whole is projected to remain on an upward trajectory primarily due to
greater levels of spending for Medicare and Medicaid.
Changes in the Composition of Mandatory Spending
The composition of mandatory spending has changed dramatically over the past 40 years and,
according to CBO baseline projections, will to continue to change over the decade. Figure 2
shows how major components of mandatory spending as a percentage of total federal spending
have evolved since 1969.
Figure 2. Components of Mandatory Spending
As a Percentage of Federal Spending (FY1969-FY2020)
70%
60%
50%
s
Other Mandatory
y
a
tl
u
40%
l O
Other Retirement and Disability
ta
Medicaid
o
f T
o
e
Income Security
g 30%
ta
Medicare
n
e
rc
e
P
20%
Social Security
10%
0%
9
1
3
5
77
79
1
3
5
7
9
91
3
5
7
9
1
03
5
7
9
1
3
15
17
9
196
197
197
197
19
19
198
198
198
198
198
19
199
199
199
199
200
20
200
200
200
201
201
20
20
201
Fiscal Year

Source: CBO, Historical Tables, available at http://www.cbo.gov/budget/historical.shtml. Baseline projections are
CRS calculations based on CBO Budget Projections data, available at http://www.cbo.gov/budget/budproj.shtml.
CBO baseline projections depicted to the right of the vertical dotted line. Offsetting receipts are excluded.
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Mandatory Spending Since 1962

Persistent increases in health care spending have been a particularly important driver of
mandatory spending trends. Since enactment of the 1965 Medicare Act, the Medicare and
Medicaid programs have composed a growing share of mandatory spending. Medicare and
Medicaid spending grew from 15.5% of mandatory spending in 1970 to 35.8% in 2009. CBO
baseline projections show further increases in federal health spending will cause the Medicaid
and Medicare share of mandatory spending to continue to rise. As an example, by 2020, based on
CBO baseline projections, Medicare and Medicaid are projected to account for 49.7% of
mandatory spending.
In contrast to growing per capita health care spending, Social Security’s share of outlays is
projected to remain essentially flat as a share of mandatory spending, from 38.4% in FY2008 to
38.9% in FY2020.10
Mandatory Spending and the Economy
Another way to evaluate mandatory spending trends is as a percentage of GDP to show what
share of total economic resources are devoted to these programs. Figure 3 shows the evolution of
mandatory spending and its components relative to GDP since 1969.

10 In 2009, Social Security spending as a percentage of total mandatory spending fell to 32.4% due to the overall
increase in total mandatory spending as a result of economic recovery and federal financial interventions. After 2011,
the long-term trend in Social Security spending as a percentage of total mandatory spending remains relatively flat as
discussed above.
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Mandatory Spending Since 1962

Figure 3. Mandatory Spending Before Offsetting Receipts
As a Percentage of GDP (FY1969-FY2020)
18%
16%
14%
12%
Other Mandatory
P
D
G 10%
of
ge
Other Retirement and Disability
ta
Income Security
n
e
8%
rc
e
Medicaid
P
6%
Medicare
4%
Social Security
2%
0%
69
71
73
75
81
83
85
87
89
93
95
97
99
01
05
07
09
11
13
5
19
19
19
19
19
1977 1979 19
19
19
19
19
1991 19
19
19
19
20
2003 20
20
20
20
20
201
2017 20
Fiscal Year

Source: CBO, Historical Tables, available at http://www.cbo.gov/budget/historical.shtml. Baseline projections are
CRS calculations based on CBO Budget Projections data, available at http://www.cbo.gov/budget/budproj.shtml.
CBO baseline projections depicted to the right of the vertical line. Offsetting receipts are excluded.
Mandatory spending, relative to the size of the economy, grew rapidly in the late 1960s and
1970s. In the 1980s, Medicare, Medicaid, and Social Security continued to grow, while other
components of mandatory spending fluctuated with the business cycle. In the 1990s, mandatory
spending including offsetting receipts (about 1% of GDP) remained around 10% of the economy.
Social Security spending grew relative to the economy from 2.8% of GDP in 1969 to its peak of
4.9% of GDP in 1983. Since then, Social Security has fluctuated between 4.3% and 4.8% of GDP.
CBO projects Social Security spending will increase from 4.8% in 2009 to 5.2% of GDP in 2020.
Both Medicare and Medicaid have grown faster than the overall economy, and continued growth
is expected. According to CBO current-law projections, they will total 6.6% of GDP in 2020.11
During recessions, GDP falls and spending automatically increases on unemployment insurance
and some means-tested programs such as SNAP. Spending on income support programs,
therefore, has been more volatile than Social Security and Medicare spending because income
support spending is more closely tied to economic fluctuations. In the 1960s, income support
programs accounted for about 1% of GDP or less. In the wake of the 1974-1976 recession and the
1974 creation of the Supplemental Security Income (SSI) program, income support spending rose
to over 2% of GDP. In recent years, income support spending has hovered around 1.5% of GDP.

11 CRS calculations based on CBO budget projection data, available at http://www.cbo.gov/budget/budproj.shtml.
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Mandatory Spending Since 1962

Due to current economic conditions, income support spending rose to 2.4% of GDP in 2009 and
is projected to equal 2.4% of GDP in 2010, before falling to 2.3% of GDP in 2011 and 1.3% of
GDP in 2020.
The spike in the “other mandatory” spending category in 2009 is largely due to the net subsidy
costs of outlays related to TARP and support for the GSEs.
Why Has Mandatory Spending Risen?
The share of mandatory spending has increased as a portion of total federal spending and as a
percentage of GDP for four reasons.
First, discretionary spending, defined as non-entitlement spending that is provided through
appropriations acts, has fallen relative to mandatory spending. Defense discretionary expenditures
once dominated domestic discretionary spending but now account for a relatively smaller share of
total federal spending. However, as a share of GDP, defense discretionary expenditures have
trended downwards since the height of the Vietnam War in the late 1960s, despite temporary
increases during the late 1970s and early 1980s. Even with recent increases in defense
discretionary spending, which accounted for 4.6% of GDP in 2009, this spending took up less
than half the share of the economy compared to the late 1960s.
Second, domestic discretionary spending has been relatively stable as a share of GDP compared
to mandatory spending, which has grown more quickly. Domestic discretionary spending, about
2.5% of GDP in the early 1960s, rose to about 4.5% of GDP in the mid-1970s, partly due to
expansion of social spending and partly because of the severity of the 1974-1975 recession. In the
1980s, domestic discretionary spending as a share of GDP fell, and budget limits or “caps” helped
restrict growth in discretionary spending in the 1990s. Due to slight increases in the last half
dozen years, domestic discretionary spending remained about 3.5% of GDP—its approximate
share for the late 1960s and early 1970s. The international component of discretionary spending,
just under 1% of GDP in 1962, has declined to 0.3% of GDP in recent years. These trends in
discretionary spending are shown in Figure 4.
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Figure 4. Discretionary Spending
As a Percentage of GDP (FY1969-FY2009)
14%
12%
Domestic Discretionary
International Discretionary
Defense Discretionary
10%
P
D
8%
G
of
ge
ta
n
e
6%
rc
e
P
4%
2%
0%
69
71
73
75
83
85
87
89
91
93
95
97
99
01
03
05
19
19
19
19
1977
1979
1981
19
19
19
19
19
19
19
19
19
20
20
20
2007
2009
Fiscal Year

Source: CBO, Historical Tables, available at http://www.cbo.gov/budget/historical.shtml.
Third, the number of beneficiaries of entitlement programs has grown as the average age of
population has risen. The Medicare Act of 1965 extended health benefits for most retirees and
greatly expanded federal financial support for indigent health care through the Medicaid program.
Other programs, such as SSI and the earned income tax credit (EITC) introduced in the 1970s,
also increased the number of beneficiaries. Moreover, as life expectancy has increased, the
proportion of the population older than 85 has also increased, which has helped increase Social
Security and Medicare spending.
Fourth, health care costs per capita have grown far faster than the overall economy. New medical
technologies transformed health care in the past generation, leading to increased costs and a more
intensive style of medical practice. Third-party reimbursement of health care costs by public and
private insurance programs provided consumers and medical providers with few incentives to
control costs until the 1980s. Health care cost growth was slowed by the introduction of
Medicare’s prospective payment system for hospitals in 1983 and the expanding market share of
Health Maintenance Organizations (HMOs) in the mid-1980s. Attempts to control costs after the
1980s, such as the Balanced Budget Act of 1997 (P.L. 105-33), have been only temporarily or
partially successful in slowing the rate of increase in health care spending.
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Mandatory Spending Beyond 2020
CBO baseline projections, which extend 10 years forward, do not reflect the full force of the
pressures the impending retirement of the large baby boom generation will exert on the federal
budget. The oldest baby boomers reach age 65 in 2011, and most will not reach age 65 until after
2015. Extended baseline projections suggest that Social Security spending could amount to 6.2%
of GDP by 2083—an increase of 2% of GDP from its 2008 level. According to CBO extended
baseline projections, Medicare and Medicaid spending, in large part due to rising health care
costs, is projected to reach 17.8% of GDP by 2083. However, under an alternative scenario where
no slowing of health care cost growth occurs, spending on Medicare and Medicaid could reach
44.1% of GDP by 2083.12 By contrast, total federal spending on these programs in 2008 was 4.6%
of GDP.
Most fiscal experts assert that avoiding the accumulation of large, unsustainable debts will require
cuts in entitlement benefits, large increases in federal revenues, a significant reduction in
discretionary spending, or some mix of those policies. Because federal deficits and debts have
adverse economic consequences, including lower economic growth, the longer such adjustments
are delayed, the more difficult it will be to make adjustments.
Conclusion
Mandatory spending has taken up an increasingly large share of federal spending over the past
half century. By the end of the next decade, according to CBO baseline projections, mandatory
spending will account for three out of every five dollars of federal spending. Mandatory spending
has grown relative to the economy, even as the size of total federal spending relative to the overall
economy has remained roughly constant.
Major entitlement programs play a larger and larger part within the category of mandatory
spending. In 1962, before Medicare and Medicaid were created, Social Security accounted for
just over half of all mandatory spending. Today, Social Security accounts for slightly less than
40% of mandatory spending. Medicare and Medicaid, since their inception, have taken up an
increasingly large share of mandatory spending. Together those two programs’ outlays now
exceed Social Security spending, and CBO current-law projections indicate they could make up
half of mandatory spending in 2020.
Reducing the federal deficit significantly by cutting spending without reducing mandatory
spending, and in particular entitlements, would be difficult. Social Security, Medicare, and
Medicaid account for over three-quarters of mandatory spending in 2008 and just over two-fifths
of total federal outlays. Focusing budget cuts on the big three programs, however, could adversely
affect the elderly or the poor. Limiting budget reductions to income support programs, such as
Temporary Assistance for Needy Families (TANF), SSI, and SNAP, would not reduce the federal
deficit by much as these programs account for about one-sixth of mandatory spending.

12 CBO, The Long-Term Budget Outlook, Supplemental Data for Figures 1-1, 1-2, and 2-3, June 2009, available at
http://www.cbo.gov/ftpdocs/102xx/doc10297/06-25-LTBO.pdf.
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Most of the increases in federal spending have been occurring in Medicare and Medicaid.
Fundamental reform of the health programs may be needed to eliminate long-term fiscal strains
while preserving the goals of these programs.

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

Acknowledgments
Thomas Hungerford wrote an earlier version of this report.

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