Mandatory Spending Since 1962
D. Andrew Austin
Analyst in Economic Policy
Mindy R. Levit
Analyst in Public Finance
September 15, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33074
CRS Report for Congress
P
repared for Members and Committees of Congress

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 13% of total federal
spending or about half of all mandatory spending. By 2009, mandatory spending composed 60%
of total federal spending, or roughly 15% of GDP. Medicare and Medicaid totaled about 14% of
total federal spending or 3.5% of GDP in 2009. Social Security exceeded 19% of total federal
spending or 4.8% of GDP 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.
Federal mandatory spending on health care is projected to expand from 5.3% of GDP in 2009 to
17.9% in 2084 according to a Congressional Budget Office (CBO) extended baseline projection.
Social Security is projected to grow from 4.8% of GDP in 2009 to 6.3% of GDP by 2084.
In an effort to reform the private insurance market and expand health insurance coverage to the
uninsured as federal spending on health care increases, the Patient Protection and Affordable Care
Act (PPACA; P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010
(HCERA; P.L. 111-152) were signed into law on March 23 and March 30, 2010, respectively.
Among other provisions, this legislation established a mandate for most U.S. residents to obtain
health insurance, set up insurance exchanges, expanded Medicaid, and imposed various tax code
changes. As a result of this legislation, mandatory federal outlays for health programs are
projected to increase. Revenue increases are projected to offset the additional mandatory outlays.
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
as needed.
Congressional Research Service

Mandatory Spending Since 1962

Contents
Overview .................................................................................................................................... 1
What Does Mandatory Spending Include? ................................................................................... 1
Mandatory Spending Trends Over Time ...................................................................................... 6
Changes in Mandatory Spending ......................................................................................... 11
Mandatory Spending and the Economy ............................................................................... 13
Why Has Mandatory Spending Risen? ...................................................................................... 15
Mandatory Spending Beyond 2020............................................................................................ 16
Conclusion................................................................................................................................ 17

Figures
Figure 1. Mandatory Outlays in FY2009 ..................................................................................... 3
Figure 2. Mandatory Spending and Offsetting Receipts As a Percentage of Total Outlays
(FY1962-FY2020) ................................................................................................................... 7
Figure 3. Components of Mandatory Spending As a Percentage of Federal Spending
(FY1970-FY2020) ................................................................................................................. 12
Figure 4. Mandatory Spending Before Offsetting Receipts As a Percentage of GDP
(FY1970-FY2020) ................................................................................................................. 13
Figure 5. Income Security Programs As a Percentage of GDP (FY2000-FY2020) ...................... 14
Figure 6. Discretionary Spending As a Percentage of GDP (FY1970-FY2009) ......................... 16

Tables
Table 1. Mandatory Outlays, FY2009-FY2020 ............................................................................ 4
Table 2. Mandatory Program Spending As a Percentage of Total Mandatory Outlays and
GDP ........................................................................................................................................ 8

Contacts
Author Contact Information ...................................................................................................... 18
Acknowledgments .................................................................................................................... 18

Congressional Research Service

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 40% 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. After falling in
2010 relative to 2009 levels, mandatory spending is projected to increase in 2011. Between 2012
and 2013, mandatory spending is projected to fall. However, the Congressional Budget Office
(CBO) projects that mandatory spending will continue to account for an ever-increasing share of
GDP throughout the rest of the decade. Mandatory spending, according to CBO current-law
projections, will be about 13.6% 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 Security 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 and
accounted for 10.0% of total federal spending in 2009.
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. It also analyzes future mandatory spending levels and
how they are projected to impact the federal budget.
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
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

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

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.
Some 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.
Figure 1 shows mandatory outlays in FY2009 by major program area and Table 1 displays
August 2010 CBO baseline projections for mandatory spending. The area of each rectangle in
Figure 1 is proportional to outlays for a given program. Non-Medicare offsetting receipts and
inflows from federal higher education programs, chiefly student loan programs, are shown
separately.

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.
Congressional Research Service
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Figure 1. Mandatory Outlays in FY2009

Source: CBO, Budget and Economic Outlook: An Update, August 2010, available at http://www.cbo.gov/ftpdocs/117xx/doc11705/BudgetProjections.xls.
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Table 1. Mandatory Outlays, FY2009-FY2020
August 2010 CBO Baseline Projections
Actual

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Social Security
678 701 726 753 789 831 878 931 989 1,052
1,119
1,191
Medicare
499 519 560 563 611 645 677 733 763 797 869 929
Medicare offsetting receiptsa
-74 -71 -78 -84 -89 -95 -100 -107 -113 -121 -131 -141
Medicaid
251 273 276 263 279 324 369 416 450 476 508 542
Health insurance subsidies & exchanges

2 2 2 15 34 57 71 81 87 91
Other New Health Programs
1 1 8 10 6 18 23 22 26 29 33 36
Income Security
350 435 365 280 276 268 267 278 278 277 288 293
SNAP
56 70 75 76 74 69 66 66 66 65 65 64
Unemployment
compensation
120 160 93 65 55 49 48 51 53 55 57 60
Supplemental
Security
Income
45 47 53 46 52 53 54 61 58 54 61 63
Earned
income
and
child
tax
credits
67 77 75 42 43 44 44 45 44 45 45 45
Family supportb
26 27 26 25 25 25 25 25 25 25 25 25
Child
nutrition
16 17 18 19 20 21 22 23 24 25 26 27
Foster
care
7 7 7 7 8 8 8 8 9 9 9 10
Making Work Payc
13 29 17 0 0 0 0 0 0 0 0 0
Civilian and Military Retirement
138 140 142 146 150 155 161 167 173 179 186 192
Federal civiliand
80 82 84 87 90 93 96 100 104 108 112 116
Military
50 51 51 52 53 54 55 57 59 60 62 64
Other
8 7 7 7 8 9 9 10 11 11 12 12
Veterans
50 58 74 61 68 70 72 80 76 73 80 83
Income
security
46 49 64 51 57 58 59 66 62 58 65 66
Other
4 9 10 11 12 12 13 14 14 15 16 16
Financial Interventions
247 -65
20 14 10 8 4 4 4 4 4 4
Troubled
Asset
Relief
Program
151
-106
7 6 5 4 0 0 0 0 0 0
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Actual

2009
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fannie
Mae
and
Freddie
Mac
96 41 14 9 5 4 4 4 4 4 4 4
Other
Programs
69 43 102 84 62 64 70 76 78 77 82 86
Higher
education
-27 -16
-10 -2 -9 -3 2 6 8 9 9 9
Agriculture

16 17 18 12 17 16 15 16 16 16 16 16
Universal
Service
Fund
8 9 9 9 9 9 9 9 9 10 10 10
Social
services
5 5 5 5 5 5 5 5 5 5 6 6
Deposit
insurance
23 -27 15 -1 -13 -15 -15 -14 -11 -12 -8 -7
MERHCF
8 8 9 9 10 11 11 12 13 14 15 16
Children’s
Health
Insurance
Program
8 8 9 9 8 9 9 10 9 6 6 6
Other
28 39 47 43 35 32 32 32 30 29 29 30
Non-Medicare
Offsetting
Receipts
-116 -108 -112 -122 -129 -132 -137 -142 -150 -157 -161 -166
Employers’
share
of
employee
retirement -56 -61 -63 -63 -65 -67 -69 -72 -75 -79 -82 -85
Other
-60 -46 -50 -59 -64 -65 -68 -70 -75 -78 -79 -81
Total Mandatory Outlays
2,093 1,925 2,085 1,971 2,035 2,172 2,316 2,515 2,646 2,766 2,964 3,141
Source: CBO, Budget and Economic Outlook: An Update, August 2010, available at http://www.cbo.gov/ftpdocs/117xx/doc11705/BudgetProjections.xls.
Notes: Totals shown in bold. Items may not sum to totals due to rounding.
a. Includes Medicare premiums and amounts paid by states from savings on Medicaid prescription drug costs.
b. Includes Temporary Assistance for Needy Families and various programs that involve payments to states for child support enforcement and family support, child care
entitlements, and research to benefit children.
c. Includes outlays for the first-time homebuyer credit, the American Opportunity credit, acceleration of research and experimentation credits used in lieu of bonus
depreciation, and payments made when the credit for the alternative minimum tax exceeds a taxpayer’s liability.
d. Includes Civil Service, Foreign Service, Coast Guard, and other, smal er retirement programs as wel as annuitants’ health benefits.
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Mandatory Spending Since 1962

Federal student loan programs, like other federal loan and loan guarantee programs, are scored
under terms of the Federal Credit Reform Act of 1990 (FCRA; P.L. 101-508). Net subsidy costs
for those programs are calculated as a net present value of loan and loan guarantee costs.6 A net
present value is an estimated current value of a cash flow. Troubled Asset Relief Program (TARP)
costs are also calculated on a net present value basis, but unlike other federal programs,
calculations include risk adjustments. FY2009 and FY2010 costs for the mortgage giants Fannie
Mae and Freddie Mac, which were deprivatized in September 2008, reflect cash transfers from
the U.S. Treasury. Projections for later years reflect CBO’s subsidy cost estimates, adjusted for
market risk, of new loans and guarantees to Fannie Mae and Freddie Mac.
Mandatory spending is partially offset by certain fees and payments, which are counted as
offsetting receipts, which are generally counted as negative budget authority. Market-like charges,
such as Medicare Part A deductibles and Medicare Part B premiums, are considered offsetting
receipts. Some intragovernmental transfers, such as rents agencies pay 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.
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).7 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
13% of total federal spending or about half of all mandatory spending.8 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 2 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.9
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.10

6 CRS Report RL30346, Federal Credit Reform: Implementation of the Changed Budgetary Treatment of Direct Loans
and Loan Guarantees
, by James M. Bickley.
7 Officially titled “Social Security Amendments of 1965.”
8 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 2. In 2009, offsetting receipts totaled $190 billion or 8% of total
spending on mandatory programs.
9 While some budget enforcement legislation constraining the computation of CBO baseline estimates has expired,
CBO has continued to follow those legislative guidelines.
10 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
(continued...)
Congressional Research Service
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Mandatory Spending Since 1962

Figure 2. Mandatory Spending and Offsetting Receipts
As a Percentage of Total Outlays (FY1962-FY2020)
70%
60%
Mandatory Spending Before
Offsetting Receipts
50%
Mandatory Spending Including
s
y

Offsetting Receipts
40%
tla
u
l O
a

Tot 30%
of
%

20%
10%
0%
62
64
66
70
72
74
78
80
82
86
88
0
92
94
96
00
02
04
08
10
12
16
18
0
19
19
19
1968 19
19
19
1976 19
19
19
1984 19
19
199 19
19
19
1998 20
20
20
2006 20
20
20
2014 20
20
202
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/ftpdocs/108xx/doc10871/Historicaltables2010Jan_forweb.XLS
and CBO Budget Projections data available at: http://www.cbo.gov/ftpdocs/117xx/doc11705/
BudgetProjections.xls. CBO treats some offsetting receipts, especial y 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 nearly 60% 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. After falling in 2010 relative to 2009 levels, mandatory
spending is projected to increase in 2011 before falling again in 2012 and 2013 as the economy
recovers. The upward trajectory resumes thereafter largely due to rising health care costs and
demographic effects. Table 2 presents components of mandatory spending in 2009 and 2010
(estimated) and CBO baseline projections for mandatory spending in 2020.

(...continued)
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.
Congressional Research Service
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Table 2. Mandatory Program Spending As a Percentage of Total Mandatory Outlays and GDP
FY2020 (CBO Baseline

FY2009
FY2010 (Estimated)
Projections)
% of
% of
% of
% of
% of
% of
Category
Mandatory
Mandatory
Mandatory
a $Billions
Spending
GDP $Billions
GDP $Billions
GDP
a
Spendinga
Spendinga
Social Security
678 29.7% 4.8% 701 33.3%
4.8%
1,170 34.6%
5.1%
Medicare
499 21.9% 3.5% 519 24.6%
3.5%
1,038 27.0%
4.0%
Medicaid
251 11.0% 1.8% 273 13.0%
1.9% 458 15.7%
2.3%
Other Health Programs
17 0.7%
0.1% 18 0.8%
0.1%
149 4.3%
0.6%
Health Insurance Subsidies, Exchanges,
0 0.0%
0.0% 0 0.0%
0.0%
91 2.6%
0.4%
and Related Spending
MERHCFb 8
0.4%
0.1%
8
0.4%
0.1%
16
0.5%
0.1%
Children’s Health Insurance Program
8
0.3%
0.1%
8
0.4%
0.1%
6
0.2%
0.0%
Other 1
0.0%
0.0%
1
0.1%
0.0%
36
1.1%
0.2%
Income Security
350 15.3% 2.5% 435 20.7% 3.0% 293 8.5% 1.3%
SSI 45
2.0%
0.3%
47
2.3%
0.3%
63
1.8%
0.3%
EITC and child tax credits
67
2.9%
0.5%
77
3.7%
0.5%
45
1.3%
0.2%
Unemployment comp.
120
5.3%
0.8%
160
7.6%
1.1%
60
1.7%
0.3%
SNAP (Food Stamps)
56
2.4%
0.4%
70
3.3%
0.5%
64
1.9%
0.3%
Family supportc 26
1.2%
0.2%
27
1.3%
0.2%
25
0.7%
0.1%
Child nutrition
16
0.7%
0.1%
17
0.8%
0.1%
27
0.8%
0.1%
Foster care
7
0.3%
0.0%
7
0.3%
0.0%
10
0.3%
0.0%
Making Work Pay and Other Tax
13 0.6%
0.1% 29 1.4%
0.2% * 0.3%
0.0%
Creditsd
Civilian and Military Retirement 138
6.1%
1.0%
140
6.6%
1.0%
192
5.6%
0.8%
Federal civilian
80
3.5% 0.6% 82 3.9% 0.6% 116 3.4% 0.5%
Military 50
2.2%
0.4%
51
2.4%
0.3%
64
1.9%
0.3%
Other 8
0.4%
0.1%
7
0.3%
0.0%
12
0.4%
0.1%
CRS-8


FY2020 (CBO Baseline

FY2009
FY2010 (Estimated)
Projections)
% of
% of
% of
% of
% of
% of
Category
Mandatory
Mandatory
Mandatory
a $Billions
GDP
GDP
GDP
Spending
$Billions
$Billions
a
Spendinga
Spendinga
Veterans 50
2.2%
0.3%
58
2.8%
0.4%
83
2.4%
0.4%
Income Security
46
2.0%
0.3%
49
2.3%
0.3%
66
1.9%
0.3%
Other 4
0.2%
0.0%
9
0.4%
0.1%
16
0.5%
0.1%
Other Programs 300
13.2%
2.1%
-38
-1.8%
-0.3%
68
2.0%
0.3%
GSEs 96
4.2%
0.7%
41
1.9%
0.3%
4
0.1%
0.0%
TARP e
151 6.6% 1.1% -106 -5.0% -0.7% * 0.0% 0.0%
Agriculture
16
0.7%
0.1%
17
0.8%
0.1%
16
0.5%
0.1%
Higher Educationf
-27 -1.2% -0.2% -16 -0.8%
-0.1% 9 0.3%
0.0%
Universal Service Fund
8
0.4%
0.1%
9
0.4%
0.1%
10
0.3%
0.0%
Social services
5
0.2%
0.0%
5
0.2%
0.0%
6
0.2%
0.0%
Deposit insuranceg 23
1.0%
0.2%
-27
-1.3%
-0.2%
-7 -0.2%
-0.0%
Other 28
1.2%
0.2%
39
1.9%
0.3%
30
0.9%
0.1%
Mandatory Spending Excluding
2,283 100% 16.0%
2,104 100% 14.3%
3,447 100%
14.9%
Offsetting Receipts
Offsetting Receipts -190

-1.3%
-179

-1.2%
-306

-1.3%
Medicare -74

-0.5%
-71

-0.5%
-141

-0.6%
Employer’s share of employee
-56
-0.4%
-61
-0.4%
-85
-0.4%
retirement
Other -60

-0.4%
-46

-0.3%
-81

-0.3%
Total Mandatory Spending
2,093 14.7%
1,925 13.1%
3,141
13.6%
Medicare Spending Net of Offsetting
425 3.0%
447
3.0%
788
3.4%
Receipts
Source: CBO, The Budget and Economic Outlook: An Update, August 2010, Budget Projections, available at http://www.cbo.gov/ftpdocs/117xx/doc11705/
BudgetProjections.pdf.

CRS-9


Notes: Indicates that an outlay level is between -$500 million and $500 million. Some items do not sum to totals due to rounding. See source for other notes.
a. Excludes offsetting receipts.
b. MERHCF is the Department of Defense Medicare-Eligible Retiree Health Care Fund, including TRICARE For Life.
c. Includes Temporary Assistance for Needy Families and various programs that involve payments to states for child support enforcement and family support, child care
entitlements, and research to benefit children.
d. Includes outlays for the first-time homebuyer credit, the American Opportunity credit, acceleration of research and experimentation credits used in lieu of bonus
depreciation, and payments made when the credit for the alternative minimum tax exceeds a taxpayer’s liability.
e. 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 $67 billion. With actual outlays of $151 billion in FY2009, the CBO
baseline now reflects negative net TARP outlays for the FY2010-FY2020 period of $84 billion (negative net outlays of $106 billion in FY2010 and positive outlays of
$22 billion between FY2011-FY2020). The negative outlay in 2010 does not reflect TARP spending undertaken in 2010.
f.
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. Between FY2010 and FY2014 negative outlays are again
projected, but as the economy recovers, positive outlays are expected for FY2015-FY2020.
g. 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.

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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 on mandatory
spending occurred in 2009 for TARP and between 2009 and 2013 for the GSE assistance.11
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 economic recovery continues, 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 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 3
shows how major components of mandatory spending as a percentage of total federal spending
have evolved since 1970.
Social Security’s share of outlays is projected to remain essentially flat as a share of federal
spending, ranging between 20% and 21% of total federal spending, throughout the decade. As the
economic recovery continues, outlays for income security programs are projected to fall from
10.0% of total federal spending in 2009 to 5.3% by 2020.12 Spending on other mandatory
programs is also projected to decline significantly as outlays related to the TARP and GSE
assistance decline. Other mandatory spending rose from 4.3% of total federal spending in 2008 to
10.0% in 2009. By 2020, spending in this category is projected to fall to 2.7% of total federal
spending.
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 4.9% of total federal outlays in 1970 to 21.3% in 2009. CBO
baseline projections show further increases in federal health spending will cause the Medicaid
and Medicare share of total spending to continue to rise. By 2020, based on CBO baseline
projections, Medicare and Medicaid are projected to account for 26.5% of total federal spending.

11 For more information on federal financial assistance provided by TARP and to the GSEs, see CRS Report R41073,
Government Interventions in Response to Financial Turmoil, by Baird Webel and Marc Labonte.
12 Outlays for income security are estimated to increase as a percentage of total federal spending in 2010 (12.5%)
relative to the 2009 level.
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Mandatory Spending Since 1962

Figure 3. Components of Mandatory Spending
As a Percentage of Federal Spending (FY1970-FY2020)
70%
Other Health Programs
60%
50%
Other Mandatory
s
tlay
u

40%
l O
Other Retirement and Disability
Medicaid
ta
o
f T
o
e

Income Security
g 30%
ta
Medicare
rcen
e
P

20%
Social Security
10%
0%
0
72
74
76
78
80
4
86
88
90
92
94
98
00
02
04
06
0
12
14
16
18
20
197
19
19
19
19
19
1982
198
19
19
19
19
19
1996
19
20
20
20
20
2008 201
20
20
20
20
20
Fiscal Year

Source: Offsetting receipts are excluded. CRS calculations based on data from CBO, Historical Tables, available
at http://www.cbo.gov/ftpdocs/108xx/doc10871/Historicaltables2010Jan_forweb.XLS; and CBO, Budget
Projections, data available at http://www.cbo.gov/ftpdocs/117xx/doc11705/BudgetProjections.xls.
Notes: CBO added the category “Other Health Programs” to its Budget Projections data following the enactment
of PPACA and HCERA. This category includes Health Insurance Subsidies, Exchanges, and Related Spending,
MERHCF, CHIP, and Other health spending. Prior to PPACA and HCERA, MERHCF and CHIP were included in
the “Other Mandatory” category.
In an effort to reform the private insurance market and expand health insurance coverage to the
uninsured as federal spending on health care increases, the Patient Protection and Affordable Care
Act (PPACA; P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010
(HCERA; P.L. 111-152) were signed into law on March 23 and March 30, 2010, respectively.13
Among other provisions, this legislation established a mandate for most U.S. residents to obtain
health insurance, set up insurance exchanges, expanded Medicaid, and imposed various tax code
changes. As a result of this legislation, mandatory federal outlays for health programs are
projected to increase (see the “Other Health Programs” category in Figure 3) relative to what
they were prior to the enactment of this legislation.14 Revenue increases are projected to offset the
additional mandatory outlays.

13 For more information on PPACA and HCERA, see http://www.crs.gov/Pages/subissue.aspx?cliid=3746&parentid=
13.
14 CBO, The Budget and Economic Outlook: An Update, Table 1-4, August 2010.
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Mandatory Spending Since 1962

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. Outlays for mandatory programs
can be affected by increases in costs, programmatic changes, the economy, and variations in the
number of people who meet eligibility criteria for program participation. Figure 4 shows the
evolution of mandatory spending and its components relative to GDP since 1970.
Figure 4. Mandatory Spending Before Offsetting Receipts
As a Percentage of GDP (FY1970-FY2020)
18%
16%
Other Health Programs
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%
70
72
74
76
78
82
84
86
88
90
92
98
00
02
04
06
8
12
14
16
18
20
19
19
19
19
19
1980 19
19
19
19
19
19
1994 1996
19
20
20
20
20
200
2010
20
20
20
20
20
Fiscal Year

Source: CRS calculations based on CBO, Historical Tables, available at http://www.cbo.gov/ftpdocs/108xx/
doc10871/Historicaltables2010Jan_forweb.XLS; and CBO, Budget Projections, data available at
http://www.cbo.gov/ftpdocs/117xx/doc11705/BudgetProjections.xls. data. CBO baseline projections depicted to
the right of the vertical line. Offsetting receipts are excluded.
Notes: CBO added the category “Other Health Programs” to its Budget Projections data following the enactment
of PPACA and HCERA. This category includes Health Insurance Subsidies, Exchanges, and Related Spending,
MERHCF, CHIP, and Other health spending. Prior to PPACA and HCERA, MERHCF and CHIP were included in
the “Other Mandatory” category.
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 2.9% of GDP in 1970 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 5.1% of GDP in 2020.
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Mandatory Spending Since 1962

Both Medicare and Medicaid have grown faster than the overall economy, and continued growth
is expected. In 1970, spending on Medicare and Medicaid totaled 0.9% of GDP. In 2009,
spending on these two programs reached 5.3% of GDP. According to CBO current-law
projections, they will total 6.4% of GDP in 2020.
During recessions, GDP falls and spending automatically increases on unemployment insurance
and some means-tested programs such as SNAP. Spending on income security programs,
therefore, has been more volatile than Social Security and Medicare spending because income
security spending is more closely tied to economic fluctuations. In the 1960s, income security
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 security spending rose
to over 2% of GDP. In recent years, income security spending has hovered around 1.5% of GDP.
Due to current economic conditions and policy changes, income security spending rose to 2.5%
of GDP in 2009 and is projected to equal 3.0% of GDP in 2010, before falling to 2.4% of GDP in
2011 and 1.3% of GDP in 2020. Figure 5 depicts how outlays for income support programs have
changed in response to economic conditions. Projections of spending on these programs beyond
2010, as depicted in this chart, are from the CBO baseline.
Figure 5. Income Security Programs
As a Percentage of GDP (FY2000-FY2020)
3.0%
Making Work Pay and
Other Tax Credits
2.5%
2.0%
Foster Care
Family Support
Child Nutrition
P
D
G
of
ge
1.5%
ta
n
e
rc
e

Unemployment
P
Compensation
SNAP
1.0%
EITC and Child Tax Credit
0.5%
Supplemental Security Income
0.0%
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020

Source: CRS calculation based on CBO data.
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Mandatory Spending Since 1962

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 6.
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.
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Mandatory Spending Since 1962

Figure 6. Discretionary Spending
As a Percentage of GDP (FY1970-FY2009)
14%
12%
Domestic Discretionary
International Discretionary
Defense Discretionary
10%
P
D

8%
f G
o
e
g
ta
n
e

6%
rc
Pe

4%
2%
0%
70
72
74
8
80
82
84
86
88
90
92
94
0
02
04
06
08
19
19
19
1976
197
19
19
19
19
19
19
19
19
1996
1998
200
20
20
20
20
Fiscal Year

Source: CRS calculations based on CBO, Historical Tables, available at http://www.cbo.gov/ftpdocs/108xx/
doc10871/Historicaltables2010Jan_forweb.XLS.
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.
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 6.3%
of GDP by 2084—an increase of roughly 2 percentage points of GDP from its 2008 level.
According to CBO extended baseline projections, federal mandatory spending on health care, in
large part due to rising costs, is projected to reach 17.9% of GDP by 2084. However, under an
alternative scenario in which health care cost growth does not slow down, spending on these
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Mandatory Spending Since 1962

programs could reach 20.1% of GDP by 2084.15 By contrast, total federal spending on these
programs in 2009 was 5.3% 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 roughly one-third of
mandatory spending. Medicare and Medicaid, since their inception, have taken up an increasingly
large share of mandatory spending. Together, outlays for these two programs now exceed Social
Security spending, and CBO current-law projections indicate these programs, as well as projected
outlays for the new health care exchanges and subsidies, could make up nearly 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 accounted for just over 40% of total federal outlays in 2009. Focusing budget cuts on
the big three programs, however, could adversely affect the elderly or the poor. Limiting budget
reductions to income security programs, such as Temporary Assistance for Needy Families
(TANF), SSI, and SNAP, would not reduce the federal deficit by much as these programs
accounted for about 10% of total federal spending in 2009.
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.


15 CBO, The Long-Term Budget Outlook, Supplemental Data for Figure A-1, June 2010, available at
http://www.cbo.gov/doc.cfm?index=11579.
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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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