The United States federal budget consists of mandatory expenditures (which includes Medicare and Social Security), discretionary spending for defense, Cabinet departments (e.g., Justice Department) and agencies (e.g., Securities & Exchange Commission), and interest payments on debt. This is currently over half of U.S. government spending, the remainder coming from state and local governments.

During FY2022, the federal government spent $6.3 trillion. Spending as % of GDP is 25.1%, almost 2 percentage points greater than the average over the past 50 years. Major categories of FY 2022 spending included: Medicare and Medicaid ($1.339T or 5.4% of GDP), Social Security ($1.2T or 4.8% of GDP), non-defense discretionary spending used to run federal Departments and Agencies ($910B or 3.6% of GDP), Defense Department ($751B or 3.0% of GDP), and net interest ($475B or 1.9% of GDP).The Federal Budget in Fiscal Year 2022: An Infographic

Expenditures are classified as "mandatory", with payments required by specific laws to those meeting eligibility criteria (e.g., Social Security and Medicare), or "discretionary", with payment amounts renewed annually as part of the budget process, such as defense. Around two thirds of federal spending is for "mandatory" programs. CBO projects that mandatory program spending and interest costs will rise relative to GDP over the 2016–2026 period, while defense and other discretionary spending will decline relative to GDP.CBO-The Budget and Economic Outlook: 2018-2028-April 9, 2018

Discretionary vs. mandatory spending

Discretionary spending requires an annual appropriation bill, which is a piece of legislation. Discretionary spending is typically set by the House and Senate Appropriations Committees and their various subcommittees. Since the spending is typically for a fixed period (usually a year), it is said to be under the discretion of the Congress. Some appropriations last for more than one year (see Appropriation bill for details). In particular, multi-year appropriations are often used for housing programs and military procurement programs.

Direct spending, also known as mandatory spending, refers to spending enacted by law, but not dependent on an annual or periodic appropriation bill. Most mandatory spending consists of entitlement programs such as Social Security benefits, Medicare, and Medicaid. These programs are called "entitlements" because individuals satisfying given eligibility requirements set by past legislation are entitled to Federal government benefits or services. Many other expenses, such as salaries of Federal judges, are mandatory, but account for a relatively small share of federal spending.

The Congressional Budget Office (CBO) reports the costs of mandatory spending programs in a variety of annual and special topic publications.CBO – The Budget and Economic Outlook: Fiscal Years 2013 to 2023 – February 2013 Congress can affect spending on entitlement programs by changing eligibility requirements or the structure of programs. Certain entitlement programs, because the language authorizing them are included in appropriation bills, are termed "appropriated entitlements." This is a convention rather than a substantive distinction, since the programs, such as Food Stamps, would continue to be funded even if the appropriation bill were to be vetoed or otherwise not enacted.

The share of Federal spending for mandatory programs has been increasing as the U.S. population ages, while the discretionary spending share has fallen.CBO Historical Tables-Retrieved November 2015

Growth of mandatory spending

CBO projects that spending for Social Security, healthcare programs and interest costs will rise relative to GDP between 2017 and 2027, while defense and other discretionary spending will decline relative to GDP.CBO-Budget and Economic Outlook 2017-2027-January 2015

Over the past 40 years, mandatory spending for programs like Medicare and Social Security has grown as a share of the budget and relative to GDP, while other discretionary categories have declined. Medicare, Medicaid, and Social Security grew from 4.3% of GDP in 1971 to 10.7% of GDP in 2016.

In the long-run, expenditures related to Social Security, Medicare, and Medicaid are growing considerably faster than the economy overall as the population matures.Charlie Rose Show-Senators Bayh, Gregg and Roger Altman-February 1, 2010 Center on Budget and Policy Priorities-The Right Target: Stabilize the Federal Debt January 2010 The Congressional Budget Office (CBO) estimates that Social Security spending will rise from 4.8% of GDP in 2009 to 6.2% of GDP by 2035, where it will stabilize. However, the CBO expects Medicare and Medicaid to continue growing, rising from 5.3% GDP in 2009 to 10.0% in 2035 and 19.0% by 2082. CBO has indicated healthcare spending per beneficiary is the primary long-term fiscal challenge.CBO Long Term Budget Outlook – June and August 2010 Further, multiple government and private sources have indicated the overall expenditure path is unsustainable.Social Security Trustees Report – 2009 SummaryPeter G. Peterson Foundation – Citizen's Guide 2010

Mandatory spending and entitlements

Social Security and Medicare expenditures are funded by permanent appropriations and so are considered mandatory spending according to the 1997 Budget Enforcement Act (BEA). Social Security and Medicare are sometimes called "entitlements," because people meeting relevant eligibility requirements are legally entitled to benefits, although most pay taxes into these programs throughout their working lives.

Some programs, such as Food Stamps, are appropriated entitlements. Some mandatory spending, such as Congressional salaries, is not part of any entitlement program. Funds to make federal interest payments have been automatically appropriated since 1847.

Major categories of FY 2014 mandatory spending included: Social Security ($845B or 24% of spending), Healthcare such as Medicare and Medicaid ($831B or 24%), other mandatory programs such as food stamps and unemployment compensation ($420B or 12%) and interest ($229B or 6.5%).

As a share of federal budget, mandatory spending has increased over time. Mandatory spending accounted for 53% of total federal outlays in FY2008, with net interest payments accounting for an additional 8.5%.U.S. Congressional Budget Office, An Analysis of the President's Budgetary Proposals for Fiscal Year 2010, June 2009. In 2011, mandatory spending had increased to 56% of federal outlays.

From 1991 to 2011, mandatory spending grew from 10.1 percent to 13.6 percent of GDP, according to figures from the Congressional Budget Office. This spending is expected to continue to increase as a share of GDP. According to The Heritage Foundation, spending on Social Security, Medicare, and Medicaid will rise from 8.7% of GDP in 2010, to 11.0% by 2020 and to 18.1% by 2050.

Since the federal government has historically collected about 18.4% of GDP in tax revenues, this means these three mandatory programs may absorb all federal revenues sometime around 2050. Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation).Huffington Post-Lynn Parramore-Nine Deficit Myths We Cannot Afford-April 2010

According to the U.S. Census Bureau, in 2011 49.1% of the U.S. population lived in a household where at least one household member received a government benefit including Social Security and Medicare. This figure represented an increase from 30% in the early 1980s and 44.4% in 2008. While federal outlay for welfare was reduced by half since 1996, programs such as food stamps have seen increases in spending. In 2012, 35% of the U.S. population lived in a household that received government benefits, counting only means-tested programs such as food stamps, housing assistance and Medicaid.

Mandatory programs are affected by demographic trends. The number of workers continues declining relative to those receiving benefits. For example, the number of workers per retiree was 5.1 in 1960; this declined to 3.3 in 2007 and is projected to decline to 2.1 by 2040. According to census data for 2011, 16% of the population lived in a household where at least one individual received Social Security and 15% lived in a household where at least one individual received Medicare. From 2012 to 2027, approximately 78 million individuals will retire and begin receiving Social Security and Medicare.

These programs are also affected by per-person costs, which are also expected to increase at a rate significantly higher than the economy. The unfavorable combination of demographics and per-capita rate increases is expected to drive both Social Security and Medicare into large deficits during the 21st century. Multiple government sources have argued these programs are fiscally unsustainable as presently structured due to the extent of future borrowing and related interest required to fund them; here is a 2009 summary from the Social Security and Medicare Trustees:

Since the government borrowed and spent the trust funds' assets, there is no "lockbox" or marketable investment portfolio of $2.4 trillion for Social Security or $380 billion for Medicare. The trust funds contain non-marketable treasury securities that the government is legally obligated to pay. In the absence of a balanced budget, the government will be required to convert these non-marketable securities to marketable securities by borrowing in the future, as trust fund claims are redeemed.Sloan-Fortune-Social Security: The Next Great Bailout-July 2009Bruce Bartlett-Forbes-The 81% Tax Increase-May 2009

Medicare and Medicaid

Medicare was established in 1965 and expanded thereafter. In 2009, the program covered an estimated 45 million persons (38 million aged and 7 million disabled). It consists of four distinct parts which are funded differently: Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, and home health and hospice care. The HI trust fund is mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers. Part B (Supplementary Medical Insurance, or SMI) covers physician services, outpatient services, and home health and preventive services. The SMI trust fund is funded through beneficiary premiums (set at 25% of estimated program costs for the aged) and general revenues (the remaining amount, approximately 75%). Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries that covers all Part A and B services, except hospice. Individuals choosing to enroll in Part C must also enroll in Part B. Part C is funded through the HI and SMI trust funds. Part D covers prescription drug benefits. Funding is included in the SMI trust fund and is financed through beneficiary premiums (about 25%) and general revenues (about 75%).

Various reform strategies were proposed for healthcare, including Medicare and Medicaid. Examples include: comparative effectiveness research; independent review panels; modifying doctor incentives to focus on better care rather than fee for service; addressing a shortage of doctors and nurses; taxing healthcare benefits paid for by employers; addressing tort reform and defensive medicine; preventing obesity and related expensive conditions; addressing fraud; streamlining redundant payment systems; and improved healthcare technology.Atul Gawande-The New Yorker-The Cost Conundrum-June 2009

Growth in medical spending