Mandatory and Discretionary Spending

There are two types of spending in the federal budget process: discretionary and mandatory. Discretionary spending is spending that is subject to the appropriations process, whereby Congress sets a new funding level each fiscal year (which begins October 1st) for programs covered in an appropriations bill. Roughly one-third, or about $1 trillion, of the federal government’s activities are funded through appropriations legislation. Most of the direct activities of the federal government, such as those of the Federal Bureau of Investigations and Department of Defense, are funded through the annual appropriations process. Almost all education programs are discretionary spending programs, except for a small number of programs such as student loans, some vocational grants, school lunch, and a few tax benefit programs.

Mandatory spending is simply all spending that does not take place through appropriations legislation. Mandatory spending includes entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt. Mandatory spending accounts for about two-thirds of all federal spending. In most cases, but not all, mandatory spending is ongoing; it occurs each year absent a change in an underlying law that provides the funding. Discretionary spending, on the other hand, will not occur unless Congress acts each year to provide the funding through an appropriations bill. Tax legislation is treated as mandatory spending in many areas of the Congressional budget process.