Entitlement Spending and the Federal Budget

Background

At the federal level, there are two categories of budgetary expenditures: entitlement and discretionary spending.

Entitlement programs must provide benefits to everyone meeting the eligibility requirements. That is why the term entitlement is used to describe them. Social Security, Medicare, unemployment compensation, and food and nutrition assistance are among the many federal entitlement programs (see also Medicare). Some entitlement programs, most notably Medicaid, are co-funded by federal and state governments (see also Medicaid).

Spending on entitlement programs depends on the cost of delivering the service and the number of people who qualify.

In contrast, discretionary programs receive a set budget from Congress during each budget cycle. That budget amount limits either the number of people served by a program or the amount received by each person. Examples of discretionary programs include infrastructure, education, social services, and research and development.

Entitlement spending consumes a large and growing portion of the federal budget. As a result, deficit-reduction efforts have sometimes targeted entitlement programs. The costs of these programs can be addressed by controlling health care costs, helping people work longer, and promoting economic growth.

Tax expenditures are like entitlements. Payments are made to everyone who qualifies for them and are not subject to annual budget decisions. Tax expenditures include tax credits and tax deductions (see also Tax Expenditures). People with higher incomes are more likely than people with lower incomes to benefit from tax expenditure programs. The opposite is true for direct-spending entitlement programs.

ENTITLEMENT SPENDING AND THE FEDERAL BUDGET: Policy

ENTITLEMENT SPENDING AND THE FEDERAL BUDGET: Policy

Entitlement spending

Efforts to reform entitlement spending should recognize the following factors:

  • Projected increases in health care costs are the primary drivers of increases in projected entitlement spending.
  • Commissions or other bodies charged with making recommendations to reduce future deficits should be balanced in composition and conduct fair and transparent deliberations that give adequate time and access to all sides.
  • Attempts to create or expand tax expenditures should be subject to the same scrutiny as the limitation or elimination of entitlement spending.
  • Across-the-board cuts in entitlement spending should be rejected.