9.3 Government Spending and the Budget

Notes

• Federal spending is divided into mandatory and discretionary spending.
• Mandatory spending is required by existing laws, mostly entitlement programs such as Social Security, Medicare and Medicaid. It makes up the larger share of the federal budget. Interest on the national debt must also be paid.
• Discretionary spending is set each year by Congress through appropriations bills. It includes national defense, education, transportation and scientific research.
• Transfer payments move money from taxpayers to people who receive benefits, without goods or services being produced in return. Grants-in-aid are federal payments to state and local governments.
• The budget process: the President proposes a budget (prepared by the Office of Management and Budget); Congress debates and passes spending bills (with analysis from the Congressional Budget Office); the President signs or vetoes them. The federal fiscal year runs from October 1 to September 30.
• State and local governments spend most on education, health care, public safety and roads. Most states must balance their budgets.