Mandatory/entitlement spending

Mandatory/entitlement spending is spending for programs with funding levels that are automatically determined by the number of eligible recipients in those programs.^[8] Mandatory programs are created under authorization laws, meaning that Congress must provide whatever funds are necessary to keep these programs functional. Funding for these programs cannot be adjusted in the annual budget process; on the contrary, the only way Congress can change funding levels for these programs is by amending the authorization laws directly. Each year, the Office of Management and Budget provides an estimate of required funds for these programs, which is included in the annual budget.^[9][10]

Mandatory programs include:^[11]

• Social Security: Financial support for the elderly.
• Healthcare: Medicare (health insurance for the elderly) and Medicaid (health insurance for low-income individuals).
• Income Security: Disability Assistance, Food and Nutrition Assistance, Supplemental Security Income, Earned Income Tax Credits, and Child Tax Credits.
• Veterans Benefits: Income Security for Veterans and Healthcare Assistance.
• Other: Agriculture, Energy, General Government Services, and International Affairs.

Figure A provides a breakdown of the major mandatory government spending categories as of the fiscal year 2019 budget approved by Congress. As Figure A suggests, Social Security is the single largest mandatory spending item, taking up 38% or nearly $1,050 billion of the $2,736 billion total. The next largest expenditures are Medicare and Income Security, with the remaining amount going to Medicaid, Veterans Benefits, and other programs.^[11][12]

Discretionary spending

Discretionary spending is optional spending that is determined by Congress each year through an annual appropriations process.^[8] After mandatory spending levels have been estimated by the Office of Management and Budget, discretionary spending is determined by both chambers of Congress and usually includes input from the incumbent president of the United States. Subcommittees in both the House of Representatives and the Senate appropriate discretionary funds for their respective areas, and the two chambers reconcile their differences. Once a final spending bill has been created, passed and signed by the president, the bill becomes law.^[8][9]

Discretionary spending includes:^[13]

• Defense: Spending attributable to the maintenance and strengthening of the United States Armed Forces.
• Non-defense:
  • Transportation: Road improvements and repairs, air traffic control, Amtrak and other infrastructure investments.
  • Education: K-12 education grants, school choice programs, disability and special education programs, and lunch assistance.
  • Other veterans' benefits.
  • Public health, law enforcement, natural resources, and science.
  • Housing assistance and community services.
  • Foreign affairs and other expenditures.

Figure B provides a snapshot of the major discretionary government spending categories as of the fiscal year 2019 budget approved by Congress. As the figure suggests, over 50% of discretionary spending is attributed to national defense. The remaining 48% of funds is divided among non-defense items such as transportation and education. Total discretionary spending approved for the fiscal year 2019 is $1,305 billion, just 28% of total spending.^[10]

Interest on government debt

Oftentimes, federal governments spend more money than they collect in tax revenue in a given year. When the government spends more than it brings in, it runs a Budget Deficit that year.^[17] In order to pay for the extra spending, governments issue debt. Government debt is the amount of money credited from individuals, firms, foreign entities as well as the federal government itself through the federal reserve system.^[8] Debt accrues over time. Most public debt is held in the form of treasury bills and bonds, and the government has to repay debt over time. In order to provide an incentive for individuals, businesses and other entities to lend money, the government must also pay these parties interest on the debt.^[18] The interest expense for fiscal year 2019 is $363 billion, or 7.9% of the total budget. According to estimates from the Office of Management and Budget, interest on government debt is expected to more than double by 2028 and account for a larger percentage of total expenditures.^[10]

California

With a population of nearly 40 million as of 2018, California has by far the largest annual state expenditures albeit lower on a per-capita basis than 20 smaller states.^[27][28] California receives a significant amount of money from the federal government, especially for healthcare and welfare programs, but also has large in-state expenditures.^[29] On a per-capita basis, California receives less federal money than 12 lower population states. According to California's Department of Finance, the state's 2017-2018 enacted state budget includes over $180 billion in state funds.^[27] As can be seen below, Table 1 gives an overview of California's 2017-2018 enacted state budget. As the table suggests, health care and K12 education represent California's largest expenditures of state funds. The largest health care expenditure is for California's Medi-Cal program, a health insurance program for low-income families in California.^[30][31] In addition, health care spending is focused on women's health services, treatment for addiction, and dentistry.^[30] As Table 1 suggests, California also spends significantly on higher education, police, and transportation, with smaller portions of funding attributable to environmental protection and other activities.^[27]