What Is Mandatory Spending?

FT Contributor  | 

Every year, the congressional budget office, Congress, and the president work together to create a federal budget. Within the government’s budget, money is allocated for net interest on the federal deficit, discretionary spending, and mandatory spending. Within the mandatory spending category, the federal government uses funds to ensure important programs continue to function and assist qualifying beneficiaries.

There’s a placeholder for mandatory spending in the government budget each year to ensure these programs are funded. Mandatory spending is always included in the budget, although the exact amount of funds allocated to this category may fluctuate each year.

However, the federal government must ensure mandatory spending is included in the budget to successfully follow authorization laws. These authorization laws require the government to provide the money necessary to keep important programs running and fully funded so entitled individuals can receive the assistance they qualify for.

The Effects of Mandatory Spending

The programs that mandatory spending is responsible for funding continue to grow. This means more of the federal budget must be dedicated to these programs to ensure authorization laws are met and the programs continue to assist eligible applicants. In 1962, less than 30% of the federal budget funded mandatory spending. However, in 2014, about 60% of the federal budget was dedicated to mandatory spending.

When mandatory spending grows, it negatively affects other aspects of the budget. These negative effects include the following:

  • Slow public debt: Austerity measures must be put in place to slow the growth of public debt and the interest the government owes on this debt. Less money in the budget may be allocated to addressing this interest on public debt.
  • Decrease discretionary spending: As mandatory spending takes over more of the budget, discretionary spending is decreased. This means important issues — such as veterans benefits, housing assistance, space and technology, and international affairs — receive less funding each year through the federal budget.
  • Rigid fiscal policies: When the budget is dedicated to mandatory spending, Congress has less flexibility in the budget. This makes it hard to create new fiscal policies to improve government function.

Challenges to Mandatory Spending

The federal government is required to set aside money in the budget for mandatory spending. This money ensures certain public programs remain afloat and are available to citizens who qualify for these benefits.

Lawmakers decide who’s eligible for these programs, which determines the amount of money each program needs every year. The amount of funding needed for each program is dependent upon the number of beneficiaries and the benefit amounts they qualify to receive.

Over the years, mandatory programs, such as Social Security and Medicaid, have grown. More people are eligible for benefits and are claiming program funds. This leads to an increase in mandatory spending in the federal budget and in turn, a decrease in discretionary spending.

Mandatory Spending vs. Discretionary Spending

When the federal government sets aside money in the budget for mandatory spending, it’s used to fund certain government programs. The budget surplus that’s left over after funding for these programs is addressed may be used for discretionary spending. While mandatory spending is automatically budgeted for, discretionary spending needs to be voted on each year since the amount provided in this category may change.

Congress and the president must agree on 12 different appropriation bills and the funding for each. Appropriation committees for each bill provide key information on the funding needed for each. This allows members of Congress to make educated decisions on how to allocate discretionary funds.

Examples of Mandatory Spending

There are several federal programs funded by mandatory spending that help qualifying individuals cover necessary expenses.

Social Security

As a worker, you pay taxes to the government, which also helps fund important programs. Social Security benefits begin to pay you back when you reach a certain age and retire. These benefits may also be used by qualifying workers with disabilities or their spouses and dependents.

You may be required to pay taxes on this retirement income as you begin to collect benefits. While Social Security benefits may not provide enough monthly income for you to retire and live comfortably, these monthly payments may help you cover some living expenses when you stop working.

Medicaid

Medicaid is a health insurance program set aside for low-income individuals to ensure they have adequate coverage. If employee benefits through your employer don’t include affordable medical insurance coverage, you may qualify for Medicaid health insurance coverage through the federal program. These benefits help you pay for medical expenses, including prescription drugs and preventative care.

Medicare

Medicare is another federal health program funded through mandatory spending that provides health insurance coverage to qualifying seniors or persons with disabilities. When you qualify for Medicare, you don’t need to obtain expensive private insurance for financial assistance with medical expenses. The program offers coverage to seniors to make it easier to live on a fixed income in their retirement years.

Welfare Programs

There are several different welfare programs that help individuals who are currently living on low incomes. For example, Temporary Assistance for Needy Families (TANF) is a state-run welfare program that’s funded by the federal government through mandatory spending. Low-income families that qualify for this program are provided with financial assistance to ensure their children have the basic necessities.

Supplemental Nutrition Assistance Program (SNAP), also commonly referred to as food stamps, is another welfare program that assists low-income families with their nutritional needs. Families that qualify for SNAP receive monthly benefits that may be used to purchase groceries for the household. The program is funded by the federal government but each state sets its own eligibility guidelines, such as qualifying household size, monthly earned income, and location.

Unemployment Benefits

Mandatory spending in the federal budget also goes toward funding the unemployment insurance program. Each state administers its own unemployment insurance program through federal funding. The program provides limited-time payments to eligible individuals who lost their job through no fault of their own. The program is designed to ensure those who were laid off or let go from work still have money to cover living expenses as they look for full-time work.

When creating the annual federal budget, Congress and the president must provide adequate funding for mandatory spending. The money provided to fund these programs secures financial assistance for eligible applicants so they can cover basic necessities, such as medical treatments and food.

Mandatory spending has increased over the years due to the expansion of these programs and an increase in the number of eligible beneficiaries. While more mandatory spending takes away from other fiscal policies and discretionary spending, it’s necessary to ensure individuals have access to the federal program benefits they need.


Image Source: https://depositphotos.com/