Mandatory spending is projected to reach $5.2 trillion for FY 2021, with the majority of this budget going towards Social Security and Medicare. These two entitlement programs alone account for 25% of all federal spending, which is twice the amount allocated to the military budget. Congress established these mandatory programs through authorization laws, mandating that funds be appropriated to keep them running. The Office of Management and Budget (OMB) estimates the costs of fulfilling these laws, which can only be reduced by changing the authorization laws themselves, a process that requires a 60-vote majority in the Senate.
These mandatory programs, such as Social Security and Medicare, are outside the annual budget process governing discretionary spending, making them a vital but inflexible component of government expenses. Social Security, the largest federal budget item, costs $1.135 trillion, while Medicare is projected to cost $709 billion in FY 2021, subsidizing healthcare for those over 65. Other mandatory programs, including Medicaid and income-support programs, will amount to $621 billion, providing assistance to low-income families and individuals.
Impact on the Economy
The high level of mandatory spending limits the government's ability to invest in discretionary programs, creating a rigid and unresponsive fiscal policy that ultimately hinders economic growth. The challenges of reducing benefits tied to mandated programs further contribute to the growth of mandatory spending. With an aging population and rising healthcare costs, the costs of programs like Social Security and Medicare are expected to double in the next decade, posing a significant budgetary dilemma for Congress.
Choices Ahead
To address the growing costs of mandatory programs, Congress may need to consider amending the laws that establish these entitlements. By 2030, as the population over 65 grows to 20%, the strain on government resources to fund these programs will intensify. Tough choices lie ahead, whether to allocate more budget towards benefits, increase overall spending (potentially raising taxes or debt), or decrease benefit payments to retirees. Each option comes with its own economic consequences and challenges.
Interest on the Debt
While not officially part of the mandatory budget, interest on the national debt is a significant mandated expense projected at $300 billion for FY 2021. This interest, nearly a third of the budget deficit, further adds to the fiscal challenges faced by the government in managing its mandatory spending obligations.
