Government budgeting is a complex process that can be difficult for the average person to understand. Simply put, there are two main types of government spending: mandatory vs discretionary spending.
Mandatory spending is determined by pre-determined laws or regulations. It cannot be changed without an act of Congress. Discretionary spending, on the other hand, is set by Congress and can be changed at any time.
In this article, we will go over the key differences between mandatory vs discretionary spending, their inherent advantages and disadvantages, and give examples of each to better understand them.
What is Mandatory Spending?
Mandatory spending–simply put–is government spending that is required by law. This could include programs such as Social Security, Medicare, and Medicaid. Taxes funded these programs, which are not subject to the annual budget process.
These programs are called “mandatory” because they are required by law, and Congress cannot change the requirements without passing or legislating a new law to amend it. This type of spending makes up most government spending and includes essential projects, government services, and interest in the national debt.
The advantage of mandatory government spending is that it provides a safety net for the people who need it most. Having a safety net in place helps ensure people do not fall into poverty or go without essential services such as medicine, insurance programs, and social security.
These insurance programs require a better understanding of a person’s various forms of income, as seen in their form 1099. You can even create your 1099s to process these documents easily.
The disadvantage of mandatory government spending is that it can contribute to the country’s debt burden. When the government spends more money than it takes in, it must borrow money to make up the difference. This increases the country’s debt burden, which can have negative consequences for the economy.
Another disadvantage of mandatory vs discretionary spending is that it can lead to inefficiencies and waste. For example, when programs like Social Security and Medicare are not subject to annual budget reviews, it’s difficult to make changes that would improve their efficiency.
What is Discretionary Spending?
Discretionary spending is government spending that is approved by Congress as part of the annual budget process. This could include things such as defense spending, education, subsidies for small and local businesses, and infrastructure. Discretionary spending is funded by government borrowing or tax revenue.
Discretionary government spending is spending that is not mandated by law and that Congress can choose to fund or not fund each year. It includes things like defense, infrastructure, education, and scientific research.
Discretionary spending used to be a much more significant portion of the federal budget, but it has been shrinking in recent years. In the fiscal year 2020, discretionary spending is projected to make up just 30% of the total federal budget, and this is expected to continue to shrink over the next few years.
There are two types of discretionary spending: defense and non-defense. Defense spending is funding for the Department of Defense and other related agencies, which makes up a bulk of the entire budget. Non-defense discretionary spending is everything else, such as education, transportation, and environmental protection.
There are pros and cons to discretionary government spending. On the one hand, it allows Congress to fund important programs that may not be mandated by law. On the other hand, it can lead to wasteful spending and pork-barrel politics. Ultimately, it is up to Congress to decide how much money to allocate to discretionary spending each year.
Examples of Mandatory Spending
The most notable example of a mandatory government spending program is Social Security. Social Security is a social insurance program that provides benefits to retired workers, their spouses, and their children. Benefits are based on a worker’s earnings history, which can easily be seen in W-2 forms that can easily be generated online.
Other examples of mandatory spending include Medicare and Medicaid, which are health insurance programs that require more immediate and necessary funding.
Examples of Discretionary Spending
There are a number of important programs that are funded by discretionary government spending. One of the most important is defense. The Department of Defense is the largest single discretionary spender, and it accounts for more than half of all discretionary spending from the federal government.
Other important programs that are funded by discretionary government spending include infrastructure, education, and scientific research. Infrastructure spending includes things like roads, bridges, and airports. Education funding goes to funding public schools, student loans, and teacher salaries. And scientific research funding goes to organizations like NASA.
In conclusion, mandatory spending is spending that has been predetermined by existing laws and must be done each year, while discretionary spending is what Congress decides each year how much to spend on different programs.
Both mandatory and discretionary spending are important and play a role in the overall health of the economy. However, it is essential to understand the difference between the two in order to better understand how the government operates.