	Overview

Mandatory spending is composed of budget outlays controlled by laws other than appropriation acts, including federal spending on entitlement programs. Entitlement programs such as Social Security and Medicare make up the bulk of mandatory spending. Mandatory spending also finances income support programs such as Supplemental Security Income (SSI), unemployment insurance, the Supplemental Nutrition Assistance Program (SNAP), and the earned income and child tax credits. Trends that have influenced mandatory spending over time, such as the growth of health care costs in excess of general inflation and the retirement and aging of the Baby Boom generation, present policy makers with choices whether to increase federal revenues, change the structure of mandatory programs, reduce spending on other programs, or some combination of those strategies. Mandatory Spending and Net Interest Account for Two-Thirds of Outlays

In FY2016, mandatory spending—totaling an estimated 13% of gross domestic product (GDP)—exceeded discretionary spending's 6.5% share of GDP. Together, total federal spending represented an estimated 21% of GDP. Social Security, Medicare, and the federal share of Medicaid alone composed about half of all federal spending. Mandatory spending, when combined with net interest's share of spending (6.5% in FY2016), accounts for over two-thirds of federal outlays in FY2016, and that proportion is expected to grow over time. In 1962, before the 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. Discretionary spending was defined as budgetary resources provided in and controlled by appropriations acts. Net interest payments, the final category of federal spending, are automatically authorized and are the government's interest payments on debt held by the public offset by interest income that the government receives. Such entitlement spending is referred to as appropriated entitlements. Medicaid is a joint federal-state program. At that time, Social Security accounted for about 13% of total federal spending or about half of all mandatory spending. Mandatory Spending Prospects

		Projections for the Next Decade

Over the next decade, mandatory spending is projected to continue rising, reaching 15% of GDP in FY2026, while discretionary spending is projected to fall to 5.3% of GDP in that year, its lowest level in modern times. Much of the projected increase in mandatory spending stems from rising per capita health care costs and the demographic effects of an aging population. Baby Boomers will continue to retire over the coming decade, and the proportion of retirees over age 85—whose health care needs are typically greater than younger retirees—has been rising steadily, thus increasing the expected flow of federal benefits. While the growth of health care costs per beneficiary has moderated in the past decade, concerns remain that health care cost growth could again accelerate. Some health economists note that health care prices are higher in the United States than in other advanced economies. According to CBO's extended baseline projections, Social Security outlays would account for 6.3% of GDP in FY2046, while Medicare would account for another 5.7%. Demographic Shifts and Social Cohesion

Future changes in demographics and in the social structure of the U.S. population could affect support for funding of social insurance and other mandatory spending programs.
Federal spending is divided into three broad categories: discretionary spending, mandatory spending, and net interest. Mandatory spending is composed of budget outlays controlled by laws other than appropriation acts, including federal spending on entitlement programs. Entitlement programs such as Social Security, Medicare, and Medicaid make up the bulk of mandatory spending. Other mandatory spending funds various income support programs, including Supplemental Security Income (SSI), unemployment insurance, and the Supplemental Nutrition Assistance Program (SNAP), as well as federal employee and military retirement and some veterans' benefits. In contrast to mandatory spending, discretionary spending is provided and controlled through appropriations acts. Net interest spending is the government's interest payments on debt held by the public, offset by interest income that the government receives.
In FY2016, mandatory spending accounted for an estimated 63% of total federal spending and over 13% of gross domestic product (GDP). Social Security alone accounted for about 24% of federal spending. Medicare and the federal share of Medicaid together accounted for an estimated 27% of federal spending. Therefore, spending on Social Security, Medicare, and Medicaid now make up about half of total federal spending. In previous decades, mandatory spending accounted for a smaller share of federal outlays. In 1962, before the 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.
Mandatory spending is projected to continue rising over the next decades. Over the next decade, mandatory spending is projected to reach 15% of GDP in FY2026, while discretionary spending is projected to fall to 5% of GDP, its lowest level ever. Much of the projected increase in mandatory spending stems from the demographic effects of an aging population and rising health care costs. Baby Boomers will continue to retire over the coming decade, and the proportion of retirees over age 85 has been rising steadily, thus increasing the expected flow of federal benefits. While health care costs per beneficiary have increased in recent years more slowly than previously expected, concerns remain that health care cost growth could again accelerate.
Other countries with advanced economies also face challenges related to rising costs of social insurance programs, although per capita health care costs are generally lower in those countries than in the United States. Some of those countries have more extensive social safety nets. Some in the United States have called for expanding certain social insurance benefits, or for programs that would do more to address challenges faced by non-elderly families, such as expanded options for repayment of student loans or support for child care.
Over the long term, projections suggest that if current policies remain unchanged, the United States could face major fiscal imbalances. According to CBO's extended baseline projections, Social Security would grow from 4.9% of GDP in FY2016 to 5.9% of GDP by FY2026 and 6.4% by FY2036. Federal mandatory spending on health care is projected to expand from about 5.5% of GDP in FY2016 to 6.5% in FY2026 and to 7.9% by FY2036. The share of mandatory spending in total federal spending is also projected to rise.
Because costs of mandatory programs account for nearly two-thirds of total federal outlays, some budget experts contend that putting federal finances on a sustainable path would require significant reductions in federal spending, including cuts in entitlement spending. Other budget and social policy experts contend that curtailing entitlement program eligibility or benefits would compromise the goals of improving the economic security of the elderly and the poor, as well as mitigating the financial consequences of adverse events such as unemployment or disability.