A Fiscal Checkup On Mandatory Spending

There are essentially two ways the federal government spends our money  — Mandatory spending and Discretionary spending.

Think in terms of a business.  In every business there are fixed expenses (e.g. building lease) and variable expenses (e.g. cost of goods).  Consider the government’s fixed expenses “mandatory” and the variable expenses “discretionary.”

Mandatory programs are payments the government is forced by law to pay annually.  These include interest on the debt and entitlement programs such as Social Security, Medicare and Medicaid. Why do we call them entitlement programs?  Because when you reach a certain age or drop below a certain income level, you’re entitled to them.

Show Me the Money!


It’s all about the money and the problem always comes back to spending.  In an article about entitlement reform, American Enterprise Institute (AEI) noted that “The long-term budget challenge can be summarized in one word: entitlements. Without Social Security, Medicare, and Medicaid, the budget would be roughly in balance over the coming decades. Left unreformed, however, entitlement costs will become so wildly out of step with revenues that a fiscal crisis will be inevitable.[1]

According to AEI, we currently spend 9.7 percent of GDP on entitlements, while by 2030 we will spend around 14.4 percent. In contrast, in 1990 the federal government spent only 6.7 percent of GDP on entitlements and 4.0 percent in 1970.[2]

The proposed mandatory expenses are $2.293 trillion for the Fiscal Year of 2013.  The bulk of the expenses come from Social Security and Medicare. See the breakdown below: [3]

* Social Security – $820 billion

* Medicare – $523 billion

* Medicaid – $283 billion

* All other mandatory programs – $654 billion. These programs include Food Stamps, Unemployment Compensation, Child Nutrition and Tax Credits, Supplemental Security for the Disabled and Student Loans.

Social Security and Medicare do not make up the entire mandatory spending schedule, but they do represent the largest portion of it.  To pour salt on the wound, consider that Medicare and the federal share of Medicaid are the fastest-growing components of mandatory spending, making more and more Americans dependent on them over time.[4]

What many people don’t know is that much of our mandatory entitlement spending is on “autopilot,“ meaning that with mandatory programs Congress doesn’t even need to be in session for government budgets to grow automatically.[5] This is incredibly dangerous when over half of the budget is dedicated to mandatory programs.[6]

Obamacare’s Mandatory Spending

The endless pages in the new Health Care Bill (better known as Obamacare) are top of mind for many Americans. Not only are the estimated costs of this healthcare legislation way over Obama’s originally stated cost, but Obamacare law includes an estimated $105 billion in mandatory (automatic) spending.[7] [8]

The problem with this funding procedure is that it removes congressional oversight as the funding automatically kicks in year after year.

Motives and Mindsets

Given all the facts, the question is this:  Why are politicians and bureaucrats so defiant about eliminating entitlements and wasteful government spending?  They claim, “Tax the rich!” but taxing the rich will not work as the rich alone don’t have enough money to cover the shortfall.[9]  Margaret Thatcher said it best: “Eventually you will run out of other people’s money.”

Why can’t politicians agree to cut programs that even the Government Accountability Office identifies as wasteful and ineffective?[10]

The power and control of the longstanding automatic budget expenditures give continued support for the federal government’s spending habits. Additionally, the power to attract votes resides with whomever keeps these programs available to those who are dependent on them. At the forefront of many election campaigns, expanding entitlements are a gateway through which countless politicians – both Democrat and Republican – become elected and re-elected.

Entitlement Spending Crisis

History is repeating itself.  Our nation today resembles the awful economic shape we were in when Ronald Reagan took office.[11] He was a supreme example of the “take no prisoners” mentality that our nation needs today.

Reagan’s action on entitlements was very impressive. When he took office, entitlement spending was on a drastic rise that peaked at 11.6 percent of GDP in 1983. By the time he left office, entitlement spending was reduced to 9.8 percent of economic output.[12]  This same action can reduce the total burden of government spending today.

If mandatory entitlement spending is not urgently addressed, Americans will be seeing through a very real rear-view mirror in which our crisis becomes closer than it appears.

It seems most Americans have no clue that our growing entitlement spending has created a crisis. Politicians have done their job of hiding our country’s debts and liabilities.

We need Congress to reform government’s entitlement spending so we can stay above water and avoid a disastrous bankruptcy.

ACEF is on a mission to expose the truth so that Americans can understand the real costs of entitlements and mandatory spending.  Share ACEF and http://truecapitalism.org/ with your friends, neighbors and family. Contribute financially and with your time  – make the effort to take this message forward to America.