Government spending is broken down into two primary categories (two big pots of money): mandatory and discretionary. Mandatory spending represents nearly two-thirds of annual federal spending. This type of spending does not require an annual vote by Congress. The second category is discretionary spending. The difference between mandatory and discretionary spending relates to whether spending is dictated by prior law or voted on in the annual appropriations process—the latter applies to discretionary spending. A third type of spending is called supplemental appropriations, in which spending laws are passed to address needs that have arisen after the fiscal year has begun.
Mandatory Spending
Mandatory spending is required by existing laws. This type of spending includes funding for programs like Medicare, Social Security, military pensions, veterans benefits, required interest spending on the federal debt, and other payments to people, businesses, and state and local governments. Due to authorization laws, funding for these programs must be allocated for spending each year; hence, the term mandatory. Mandatory spending accounts for about two-thirds of all federal spending.
Discretionary Spending
Discretionary spending is money formally approved by Congress during the appropriations process each year. Generally, Congress allocates over half of these funds towards national defense. The remainder funds the administration of other agencies and programs. There are 12 appropriations bills that are considered each year for the 12 major agencies of the federal government; defense is one of the 12. In fiscal year 2024, the overall discretionary budget is $1.59 trillion, and the Defense Department portion of that is $842 billion (about 53% of the overall discretionary budget). Congress is required by law to pass all 12 discretionary appropriations bills by October 1st of each year. When Congress fails to do so, they usually enact a continuing resolution (CR) to fund the government and avoid a shutdown until they can agree on the 12 bills. Sometimes, they group these bills into one large bill (called an omnibus) or into a few smaller bills (called a minibus). CRs are only used for discretionary spending.
Supplemental Spending
Supplemental spending are funds enacted after the regular annual appropriations are passed when the need for funds is too urgent to wait for the next regular appropriations cycle. Examples of supplemental funding are five supplementals for the COVID-19 pandemic; one supplemental for Capitol security response to January 6 2021; and supplementals to support Ukraine in 2022 and 2023.[2]
PAYGO
Generally speaking, Pay-As-You-Go—frequently referred to as “PAYGO”—is a rule requiring that new legislation not increase the federal budget deficit or reduce the surplus. If legislation subject to PAYGO increases the deficit through an increase in federal spending or a reduction in revenues, that increase must be offset by increased revenue (higher taxes) or reduced spending in other areas. It was established in law in 2010 as Public Law 111-139.
These policies primarily apply to legislation other than appropriations acts; spending in such laws is also known as “direct” or “mandatory” spending. Generally, enforcement of discretionary spending is accomplished through measures other than PAYGO, such as caps on defense and non-defense discretionary spending. However, certain budgetary effects relating to mandatory programs that are included in annual appropriations legislation may be subject to PAYGO policies.[3]
Statutory PAYGO directs OMB not to count certain types of budgetary effects for the purposes of PAYGO enforcement. Off-budget spending, or spending affecting Social Security and the Postal Service, is excluded. Spending designated as “Emergency” is excluded from the PAYGO scorecard for enforcement purposes.[4] Many supplemental funding bills have been designated as “emergency” and therefore are not subject to PAYGO and simply increase the national debt.
EANGUS is dedicated to protecting your benefits funded by mandatory spending and defending and enhancing your benefits funded by discretionary spending.
[1] GRAPHIC: https://www.pewresearch.org/short-reads/2023/09/13/congress-has-long-struggled-to-pass-spending-bills-on-time/sr_23-08-30_appropriations_2/
[2] https://crsreports.congress.gov/AppropriationsStatusTable
[3] https://democrats-budget.house.gov/resources/reports/faqs-paygo
[4] Ibid.
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