There are three types of federal government spending: discretionary, mandatory (also called entitlements or direct spending), and interest on the debt.
Discretionary spending (35% of federal expenditures) must be approved by Congress each year through the budget process. It has two components, military (19% of federal spending) and non-military (16%).
- Military discretionary spending supports the Department of Defense, the Department of Energy’s nuclear programs, and some components of the Department of Homeland Security.
- Non-military discretionary spending pays for much of what we typically consider to be the central work of government: education; scientific and biomedical research; veterans' medical care; NASA; national parks and forests; the administrative costs (but not the benefit costs) of entitlements such as Social Security and Medicare; environmental cleanup and protection; law enforcement; Head Start, child care, and other social services; job training; housing; low-income energy assistance; the State Department (including foreign aid); and the operations of the Treasury and Congress, among many other programs and activities.
Mandatory Spending, also called direct spending or entitlements, (59% of federal expenditures) happens as a consequence of legislation establishing particular programs or services. It does not have to be approved through the budgetary process of annual appropriation bills. The spending amounts are changed only by changing the bills that established the program or service. Examples include Social Security, Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), government workers’ retirement, veterans benefits, military retirement, Supplemental Security Income, Food Stamps (SNAP), unemployment compensation, Earned Income Tax Credits, Child Tax Credits, farm price support payments, and others.
Interest (6% of federal expenditures) pays interest on the debt. The level of spending depends upon how much debt is outstanding and the rate of interest paid on the debt.