Options for Reducing the Deficit: Mandatory Spending
CBO recently published a report on Options for Reducing the Deficit: 2014 to 2023. That report is now available in a fully digital version, so users can search the options according to major budget category, budget function, and major program category. The report included 23 options for changing mandatory spending programs (apart from options primarily involving health); they are listed at the bottom of this post with estimates of their budgetary savings.
Trends in Mandatory Spending
Mandatory spending—which totaled about $2.0 trillion in 2013, or about 60 percent of federal outlays, CBO estimates—consists of all spending (other than interest on federal debt) that is not subject to annual appropriations. Lawmakers generally determine spending for mandatory programs by setting the programs’ parameters, such as eligibility rules and benefit formulas, rather than by appropriating specific amounts each year. Mandatory spending is net of offsetting receipts—certain fees and other charges that are recorded as negative budget authority and outlays.
Nearly all mandatory outlays are for social insurance programs (in which most people who are eligible to participate do so and to which those participants have contributed at least part of the funding) or means-tested programs (which link eligibility to income). The largest mandatory programs are Social Security and Medicare. Together, CBO estimates, those programs accounted for about 65 percent of mandatory outlays in 2013—or roughly 40 percent of all federal spending. Medicaid and other health care programs accounted for about 15 percent of mandatory spending last year.
The rest of mandatory spending is for income security programs (such as unemployment compensation, the nutrition assistance programs, and Supplemental Security Income), certain refundable tax credits, retirement benefits for civilian and military employees of the federal government, veterans’ benefits, student loans, and agriculture programs.
Mandatory spending averaged 11.5 percent of GDP over the past 10 years and 9.9 percent over the past four decades. If no new laws were enacted that affected mandatory programs, CBO estimates, mandatory outlays would remain fairly stable as a share of the economy, between 12.6 percent and 13.1 percent, from 2014 through 2021. Mandatory spending would accelerate in the final two years of the projection period, however, reaching 13.5 percent of GDP in 2022 and 2023, by CBO’s estimate.
CBO’s projections for total mandatory spending mask diverging trends for different components of such spending. CBO projects that, under current law, spending for Social Security and the major health care programs, notably Medicare and Medicaid, would grow from 9.8 percent of GDP in 2014 to 11.2 percent by 2023, driven largely by the aging of the population, rising health care costs per person, and an expansion of federal subsidies for health insurance. At the same time, outlays for all other mandatory programs would decline relative to GDP, from 3.0 percent in 2014 to 2.3 percent by 2023. That projected decline reflects an anticipated economic expansion, which would reduce the number of people who are eligible for many income security programs, and scheduled changes to tax provisions, which would reduce outlays arising from some tax credits.
The 23 options related to mandatory spending encompass a broad range of programs. Several would shift spending from the government to a program’s participants or from the federal government to the states. Others would redefine the population that is entitled to benefits or would reduce the amount of payments that beneficiaries receive.
Mandatory Spending Options (Other than those primarily for health-related programs)
* For options primarily affecting mandatory spending or revenues, savings sometimes would derive from changes in both. When that is the case, the savings shown include effects on both mandatory spending and revenues. For options primarily affecting discretionary spending, the savings shown are the decrease in discretionary outlays.
Sheila Dacey is an analyst in CBO’s Budget Analysis Division. The options related to mandatory spending are the result of work by various analysts at CBO, whose names can be found on the About the Document page.