Total federal spending in real US dollars (2005=100) increased at an annual rate of 3.48%, from $823.2 billion in 1971 to $3,122.9 billion in 2010, reaching its highest value of $3,209.1 billion in 2009, year when special programs were launched to rescue the economy.

Mandatory spending, defined as spending on entitlement programs and spending controlled by laws other than annual appropriation acts, excluding offsetting receipts (see explanatory note in the table below), climbed steadily at an annual rate of 4.5% throughout the period 1971-2010, growing from $340 billion in 1971 to $1,892 billion in 2010.

Social Security, Medicare, and Medicaid programs make up the bulk of mandatory spending, weighing 43% of all federal spending. Other mandatory spending programs include temporary assistance for needy families (TANF), supplemental security income (SSI), unemployment insurance, some veterans’ benefits, federal employee retirement and disability, food stamps, and the earned income tax credit (EITC).

The US demographic changes entailing the aging and the longer life spans of population, cause the numbers of beneficiaries of retirement plans and health care programs to swell, and as a consequence this category of spending to increase. Mandatory spending was lower than discretionary spending, i.e. federal spending that is provided through annual Congress appropriations acts, until 1975. Since then, however, the combined dynamics of demographic changes and rising health cost per capita, the latter driven by more expensive and more widely available health care practices, have placed mandatory spending on a much faster track than discretionary spending. In 1975, mandatory spending was 10% higher than discretionary spending, but this 10% margin grew to 55% in 2010, mandatory spending reaching $1,892 billion against $1,219 billion for total discretionary spending.

The mandatory spending levels have risen in 2009 (27% year-over-year) as a result of the adoption by the government of specific economy stimulator and social stabilizer programs, especially increases in outlays in income security programs and costs linked to the troubled asset relief program (TARP) and federal rescue of Fannie Mae and Freddie Mac.

Discretionary spending grew at an annual rate of 2.42% from $479.8 billion in 1971, to $1,219.2 billion in 2010. Defense spending used to be the main driver of discretionary outlays in the 1970s, accounting for 65% of all discretionary spending in 1971. With some upward stirrings in the mid and late 1980s – the times of Reagan's "star wars" program – defense spending moved downward in relative terms, only to take new speed from 2000 onwards, with the costly wars in Iraq, Afghanistan and elsewhere. Accordingly, defense outlays grew from $309.4 billion in 1971 to $1,164.8 billion in 2000 and to $1,892 billion in 2010, at an annual rate of 4.5% over the full period and 4.97% from 2000 to 2010.

Net interest spending grew from billion $58 billion in 1971, to $177.9 billion in 2010, at an annual rate of 2.92%. In spite of the piling government debt (12.3 trillion constant dollars in 2010), net interest spending decreased from $251 billion in 2000 to $177.9 billion in 2010, at an annual rate of -3.4%. The credit goes to the very low interest rates that prevailed lately. Nevertheless, should interest rates grow, given the size of the debt, net interest spending might run away suddenly.

Sources: US Congressional Budget Office, Bureau of Economic Analysis.

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