Some Background

The federal budget divides government spending into three categories: discretionary spending, mandatory or direct spending, and net interest.

Discretionary spending, set in annual appropriations acts developed by the House and Senate Appropriations Committees, includes most defense programs as well as spending for education, transportation, environmental protection, law enforcement and border security, international assistance, and a host of other programs.

Mandatory spending, controlled by laws other than appropriations acts, includes spending on entitlement programs. This includes the big three—Social Security, Medicare, and Medicaid—and many smaller programs such as supplemental nutrition assistance, federal civilian and military retirement benefits, and unemployment insurance. Spending is also mandatory for items the government cannot avoid, such as bills from suppliers of goods and services and plaintiff awards from lawsuits.

Government spending on mandatory programs and net interest on the public debt are often described as “uncontrollable.” Entitlements can be controlled legally by reforming them, but this can be highly unpopular politically. Interest costs can be controlled indirectly by curbing spending growth or raising revenues, but that is also difficult.

Uncontrollable spending has been growing much more rapidly than total spending and thus accounts for an ever-larger share of the total. However, most growth has been concentrated in entitlements that serve the elderly and in health insurance. The population has been aging rapidly, and that affects both Social Security and health programs. The latter have grown twice as rapidly because even after adjusting for aging, health costs per beneficiary have been growing faster than incomes per capita. Health cost growth has slowed recently, but the Congressional Budget Office expects it to reaccelerate in the long run. Social Security and Medicare, the largest health program, are among the most politically popular programs ever invented.

Whereas discretionary programs are funded by specific appropriations that generally last only one year, entitlement spending for Social Security and Medicare is ongoing and is not scrutinized as carefully or as often as discretionary spending. The laws establishing entitlements specify who is eligible and describe the benefits. The government then pays for as many eligible individuals as claim them. Thus, total entitlement spending cannot be predicted with precision from year to year—and is, in this narrow sense, “uncontrollable.”

As a matter of law, though, entitlement spending can be controlled in the long run by changing eligibility criteria or the generosity of benefits. This would require Congress to actively change the law, but as implied above, that is politically perilous. In contrast, a discretionary program, unless renewed, will automatically expire when its funding does. Discretionary spending is therefore often assumed to be easier to control than entitlement spending. But the difference should not be exaggerated: cuts in appropriations from year to year can also be highly unpopular and politically difficult.

As shown in figure 1, mandatory spending has grown as a percentage of overall spending in the last 50 years. In fiscal 1965, mandatory spending plus net interest constituted 34.2 percent of total spending. By fiscal 2015 the share had doubled to 68.4 percent. Over the same period, Social Security’s share of total spending rose from 14.4 percent to 23.9 percent. Medicare and Medicaid were created in 1965 and were responsible for a small portion of total spending throughout the rest of the 1960s. But by 2015 they and other health care programs consumed 25.4 percent of outlays. In contrast, defense discretionary spending fell over the same period from 43.1 percent of total spending at the peak of the Vietnam War to 15.8 percent in 2015. The percentage of total spending devoted to nondefense discretionary programs also fell from 22.7 percent in 1965 to 15.9 percent in 2015, but this has fluctuated significantly over the period.