	What Does Discretionary Spending Include? Discretionary spending covers the costs 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. Essentially all spending on federal wages and salaries is discretionary. Congress provides and controls discretionary funding through annual appropriations acts, which grant federal agencies the legal authority to obligate the U.S. government to make payments. Budget authority (BA) is the amount that can be legally obligated. Outlays are the payments made by the U.S. Treasury to satisfy those obligations. This report mostly discusses trends in outlays. Categories of Federal Spending

Federal spending can be divided into three basic budget categories:
discretionary spending ($1.17 trillion in FY2014 outlays), mandatory spending ($2.11 trillion in FY2014 outlays), and net interest costs (about $230 billion in FY2014),
for a FY2014 total of $3,504 billion. Discretionary Spending Limits Reimposed in 2011

Recent trends in discretionary spending have been controlled by statutory limits reestablished in the Budget Control Act of 2011 (BCA; P.L. 117 ; P.L. 8 ; P.L. 933 ; P.L. Full-Year Funding for FY2013

On March 6, 2013, the House passed a measure ( H.R. 113-6 ) on March 26, 2013. 59 ; P.L. Both modified defense and non-defense spending limits for FY2014 were $22.4 billion above the lowered caps levels that would have applied in the absence of the Bipartisan Budget Act, while FY2015 levels were about $9 billion higher. 113-76 ) on January 17, 2014. A short-term continuing resolution ( H.J.Res. 124 ) to provide FY2015 funding for the government until December 11, 2014. 113-164 ) into law on September 19, 2014. As Figure 1 shows, discretionary spending as a share of the federal budget has fallen, while mandatory spending's share has steadily increased. Discretionary spending will thus have gone from comprising two-thirds of federal spending in FY1962 to only 33% of total outlays in FY2014. Net interest accounted for 6% of federal outlays in FY1962 and 6.6% in FY2013. Discretionary Spending As a Share of GDP

Trends in discretionary spending as a share of gross domestic product (GDP) provide another perspective on how the composition of federal outlays has changed. CBO has projected that under current law discretionary spending would fall to 5.2% of GDP by FY2024. 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, reaching agreement on how to control the federal budget may become more difficult for Congress. Discretionary Spending and National Priorities

Discretionary spending can be categorized in several different ways. Spending trends can also be measured as shares of GDP, which reflects how federal spending compares with the size of the economy. Discretionary defense outlays, which had fallen to 3.0% of GDP by the late 1990s, rose sharply to 4.0% of GDP in 2005, and reached 4.7% of GDP in 2011, divided between 3.6% for the base defense budget and 1.1% for war funding (Overseas Contingency Operations; OCO). Increased defense outlays accounted for 53% of the real increase in total discretionary outlays over the decade of 2000-2010, rising 6.8% per year on average in real terms. How Much Defense Spending Is Appropriate? Non-defense discretionary spending rose to 4.6% of GDP in 2010, reflecting a decline in GDP (reducing the denominator of that share) due to the economic recession and policy responses such as the American Recovery and Reinvestment Act of 2009 (ARRA; H.R. 1 , P.L. The American Taxpayer Relief Act of 2012 (ATRA) switched FY2013 caps to security/non-security from defense/non-defense.
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. Spending can be measured by budget authority (BA; what agencies can legally obligate the government to pay) or outlays (disbursements from the U.S. Treasury). This report mostly discusses trends in outlays.
Federal spending in fiscal year (FY) 2014 was just over a fifth (20.3%) of the U.S. economy, as measured as a share of gross domestic product (GDP), which is close to its average share since FY1962. Discretionary spending accounted for 33% of total outlays in FY2014 ($3,504 billion), well below mandatory spending's share (60% of outlays in FY2014). Weak economic conditions in recent years as well as demographic trends have increased spending on mandatory income support and retirement programs, while policy makers have acted to constrain the growth of discretionary spending. As interest rates return to more normal levels as the recovery proceeds, net interest costs—6.6% of federal outlays in FY2014—are projected to rise.
Discretionary spending's share of total federal spending has fallen over time largely due to rapid growth of mandatory outlays. In FY1962, discretionary spending accounted for 67% of total outlays 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 share of GDP has fallen. Under current law projections, discretionary spending's share of GDP will fall to 5.2% in FY2024. Discretionary spending can be split into various categories to reflect broad national priorities or how federal spending decisions are made. In FY1962, discretionary spending was 12.7% of GDP, with defense spending making up 9.3% of GDP. In FY2014, discretionary spending was 6.8% of GDP, with defense spending (including war) totaling 3.5% of GDP. Defense spending can be divided between base budget and war expenditures, both of which grew sharply from FY2002 through FY2011. On average, defense outlays grew 6.8% per year in real terms from 2000 to 2010, while real non-defense discretionary outlays grew 5.6% per year. Discretionary spending has also been divided into security and non-security categories. Non-defense security spending rose sharply after 2001 and was 1.0% of GDP in FY2013, nearly twice its level before 2001.
The Budget Control Act of 2011 (BCA; P.L. 112-25) reintroduced statutory limits on spending by imposing a series of caps on discretionary BA from FY2012 through FY2021. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) modified limits for FY2013 and FY2014. The FY2013 full-year funding bill (H.R. 933; P.L. 113-6) enacted March 26, 2013, conformed to those limits. The Bipartisan Budget Act (H.J.Res. 59; P.L. 113-67) also modified BCA limits for FY2014 and FY2015. On January 17, 2014, the Consolidated Appropriations Act, 2014 (H.R. 3547; P.L. 113-76) was enacted to provide funding within those limits for the rest of FY2014. On September 19, 2014, a continuing resolution (H.J.Res. 124; P.L. 113-164) was enacted to provide funding for the government until December 11, 2014.
The direction of fiscal policy has been the focus of contention among macroeconomists. Some contend that more spending would help reduce high unemployment levels, while others call for imposing greater budgetary stringency. Growth in entitlement program outlays, in the absence of new revenue measures, may put severe pressure on discretionary spending in the future unless policy changes are enacted. This report will be updated as events warrant.