Discretionary Spending

Definition

Discretionary spending refers to the portion of government spending that is not mandated by law or entitlement programs. It is spending that the government has the flexibility to increase, decrease, or eliminate based on policy priorities and budget constraints.

5 Must Know Facts For Your Next Test

1. Discretionary spending accounts for approximately one-third of the total federal budget in the United States.
2. The largest components of discretionary spending are national defense, education, and infrastructure investment.
3. Congress must approve discretionary spending annually through the appropriations process, whereas mandatory spending is determined by existing laws.
4. During economic downturns, the government may increase discretionary spending on programs like unemployment benefits and infrastructure projects to stimulate the economy.
5. Reducing discretionary spending is often a target for lawmakers looking to cut government spending and address budget deficits.

Review Questions

• Explain the difference between discretionary and mandatory spending in the context of the federal budget.
  • Discretionary spending refers to the portion of government spending that is not mandated by law or entitlement programs, and can be adjusted by Congress through the annual appropriations process. In contrast, mandatory spending is required by existing laws, such as Social Security and Medicare, and is not subject to annual appropriations. The government has more flexibility to increase, decrease, or eliminate discretionary spending based on policy priorities and budget constraints, whereas mandatory spending is largely fixed.
• Describe how discretionary spending can be used as a tool of fiscal policy to influence the economy.
  • Discretionary spending is a key component of fiscal policy, as the government can adjust it to stimulate or contract the economy. During economic downturns, the government may increase discretionary spending on programs like unemployment benefits and infrastructure projects to boost economic activity and employment. Conversely, the government may reduce discretionary spending to address budget deficits and rein in government spending during periods of economic growth. The flexibility to adjust discretionary spending allows the government to use fiscal policy to influence macroeconomic conditions.
• Analyze the role of discretionary spending in the broader context of the federal budget and the government's efforts to address budget deficits.
  • Discretionary spending, which accounts for approximately one-third of the total federal budget, is often a target for lawmakers looking to cut government spending and address budget deficits. While mandatory spending on entitlement programs like Social Security and Medicare is largely fixed, the government has more flexibility to increase, decrease, or eliminate discretionary spending. Reducing discretionary spending, particularly on non-essential programs, is one strategy the government can employ to rein in overall spending and work towards a balanced budget. However, this must be balanced with the need to maintain critical investments in areas like national defense, education, and infrastructure, which are also funded through discretionary spending.

Related terms

Mandatory Spending: Mandatory spending refers to government expenditures that are required by law, such as Social Security, Medicare, and Medicaid. This type of spending is not subject to annual appropriations by Congress.

Fiscal Policy: Fiscal policy is the use of government spending and taxation to influence the economy. Discretionary spending is a key tool of fiscal policy, as the government can adjust it to stimulate or contract the economy.

Budget Deficit: A budget deficit occurs when the government's total expenditures, including both mandatory and discretionary spending, exceed its total revenues. Reducing discretionary spending is one way the government can work to address a budget deficit.