The US Budget Explained: Discretionary vs. Entitlement Spending

The largest component of the US budget is entitlement spending. Entitlement is not a dirty word – let’s take a look at how it works.

 

 

 

 

Discretionary vs. Entitlement Spending

First, the definition of discretionary and entitlement spending:

 

“Discretionary spending is a spending category through which governments can spend through an appropriations bill. This spending is optional as part of fiscal policy, in contrast to entitlement programs for which funding is mandatory. In the United States, discretionary spending refers to spending set on a yearly basis by decision of Congress.” – Wikipedia, http://en.wikipedia.org/wiki/Discretionary_spending

 

The amount of money spent on entitlement programs is mandatory. What that means is that congress creates a set of eligibility rules. Then those people who meet eligibility tests may make demands on the entitlement system and the amount of spending is therefore determined by demands on the system under the eligibility rules enacted by congress – not by a precise figure set by congress. In essence, congress may change eligibility rules but not directly the amount of money allocated to the system.

 

The Balance of Discretionary and Entitlement Spending

For 2013, discretionary spending proposed by President Obama is 31% of the total US budget. Entitlement spending (mandatory spending) is 62%, with the balance of 7% paying interest on the US debt.

 

US Budget - discretionary, entitlement and interest spending

 

Proposed Discretionary Spending Breakdown

Of the 31% discretionary amount, 57% is proposed to be allocated to the military. This leaves 43% x 31% = ~13% of the total US budget for the following (in declining order by percent allocated) and shown as (percent of discretionary spending), [percent of total US budget]:

  • Education: (6%), [1.86%]
  • Government: (6%), [1.86%]
  • Housing/Community: (6%), [1.86%]
  • Veterans’ Benefits: (5%), [1.55%]
  • Health (excluding Medicare/Medicaid): (5%), [1.55%]
  • International Affairs: (4%), [1.24%]
  • Energy/Environment: (3%), [0.93%]
  • Science: (3%), [0.93%]
  • Labor: (2%), [0.62%]
  • Transportation: (2%), [0.62%]
  • Food/Agriculture: (1%), [0.31%]

 

US Budget discretionary spending breakdown

 

Proposed Mandatory (Entitlement) Spending Breakdown

As can be seen in the chart below, Social Security, Unemployment, Medicare, and Medicaid make up the lion’s share of entitlement spending.

 

US Budget entitlement spending breakdown

 

Bringing it All Together

Putting it all together in one chart we can see the complete picture.

 

US Budget proposed total spending breakdown

 

Tracy Crawford

CEO Rain8 Group LLC

 

References:

National Priorities

Office of Management and Budget