Mandatory spending is composed of budget outlays controlled by laws other than appropriation acts, including federal spending on entitlement programs. Entitlement programs such as Social Security and Medicare make up the bulk of mandatory spending. Mandatory spending also finances income support programs such as Supplemental Security Income (SSI), unemployment insurance, the Supplemental Nutrition Assistance Program (SNAP), and the earned income and child tax credits. In addition, mandatory spending encompasses certain veterans' benefits, federal employee retirement, as well as many smaller budgetary items, such as salaries of Members of Congress, certain federal judges, and the President. Congress sets eligibility requirements and benefits for entitlement programs. Once a beneficiary is determined to meet eligibility requirements of a specific mandatory program, benefits are generally then paid automatically. This report describes the structure of the mandatory portion of the federal budget and past trends and projections for future mandatory outlays. Federal social insurance programs and many other federal programs funded through mandatory spending, by and large, were established to respond to events and conditions that heightened the economic vulnerability of many households. The report outlines how historical challenges shaped the evolution of those programs and changed the role of the federal government. That discussion focuses on mandatory spending programs that have had the most direct effect on federal finances. The report also discusses some implications of the growth of mandatory spending on budget policy and on the long-term fiscal stance of the federal government. Trends that have influenced mandatory spending over time, such as the growth of health care costs in excess of general inflation and the retirement and aging of the Baby Boom generation, present policy makers with choices whether to increase federal revenues, change the structure of mandatory programs, reduce spending on other programs, or some combination of those strategies. In recent years, net interest outlays and growth in health care costs have been lower than expected, keeping mandatory spending below previously projected levels, although whether those favorable trends will continue is uncertain. While mandatory spending and other fiscal policy decisions have created challenges for the federal budget over recent decades, economic conditions have also shifted in ways that have undermined the financial resiliency of many households. In FY2016, mandatory spending—totaling an estimated 13% of gross domestic product (GDP)—exceeded discretionary spending's 6.5% share of GDP. In addition, federal net interest payments accounted for 1.4% of GDP. Together, total federal spending represented an estimated 21% of GDP. Presenting spending or revenue data as a percentage of GDP compares them with the size of the overall economy and avoids the need for inflation adjustments. A constant share of GDP over time implies that spending or revenue growth has proceeded at the same rate as economic growth. Mandatory spending composed about 63% of all federal spending in FY2016. Social Security, Medicare, and the federal share of Medicaid alone composed about half of all federal spending. Mandatory spending, when combined with net interest's share of spending (6.5% in FY2016), accounts for over two-thirds of federal outlays in FY2016, and that proportion is expected to grow over time. Figure 1 shows how mandatory, discretionary, and net interest outlays have evolved since FY1962 as a share of the economy. Over that time period, mandatory spending has become the dominant component of the federal budget. In 1962, before the creation of Medicare and Medicaid, mandatory spending was less than 30% of all federal spending. At that time, Social Security accounted for about 13% of total federal spending or about half of all mandatory spending. Figure 2 shows how components of mandatory spending grew in the same period. The growth of mandatory outlays in that timespan reflects several distinct influences. In 1962, Social Security was not yet an actuarially mature program. As the number of retirees grew, so did outlays for Social Security. Congress also acted many times to expand eligibility or enhance benefits for Social Security and other mandatory programs. In 1965, the federal government made a major commitment to support the health needs of the elderly through Medicare and the poor through Medicaid. As prices for medical and hospital care grew, spurred by the demands of newly insured beneficiaries and largely unconstrained by cost controls, so did federal outlays for health programs. In the 1980s and 1990s, those cost pressures prompted efforts to curtail some benefits and limit the trajectory of health care prices. Nonetheless, some initiatives sought to expand coverage of federal health programs to particular vulnerable populations or to limit the financial consequences of serious medical episodes to existing beneficiaries. Mandatory spending trends also reflect the business cycle. Economic downturns reduce household incomes, and thus expand the pool of those eligible for income support programs such as unemployment insurance. The effects of the recession following the first oil shock of 1973-1974 and the second oil shock and tightening Federal Reserve monetary policies in 1979 are evident in Figure 1 . The effects of the Great Recession of 2007-2009 on mandatory spending were even more prominent. Mandatory spending, by offsetting the fall in private demand during recessions, acts to some extent as an automatic stabilization force and helps promote macroeconomic stability. The responsiveness of mandatory spending to economic conditions is discussed in a later section. In recent years, mandatory spending has been around 12% to 13% of GDP. The Congressional Budget Office (CBO) projects mandatory spending will rise gradually from its current levels reaching 14.9% of GDP in FY2026. CBO current-law baseline projections, which extend 10 years forward, do not reflect the full force of the pressures the aging population and increasing health care costs are expected to exert on the federal budget over the longer term. The financing of some mandatory programs has raised concerns that funding streams will at some future point be insufficient to cover promised benefits. Both Social Security and Medicare face serious challenges to their long-term financial stability. Social Security payroll tax collections usually exceeded benefit payments during the peak earning years of the Baby Boom generation, and remaining funds were used to build up the two Social Security trust funds. In coming years, however, benefit payments are expected to exceed collections, thus requiring a draw-down of trust fund balances. The Social Security Disability Insurance (DI) program faces more immediate challenges. According to actuarial projections of the Social Security trustees, the DI trust fund will be exhausted by 2023 under current policies, although tax collections in that year would be able to cover about 90% of promised benefit payments. The larger Old Age and Survivors Insurance (OASI) trust fund, according to those projections and assumptions, would be exhausted by 2035, although tax collections could cover about three-fourths of promised benefits. Medicare, according to the 2016 report of its trustees, faces "a substantial financial shortfall that will need to be addressed with further legislation." Under the trustees' current-law projections, the Health Insurance (HI) trust fund, which supports Medicare Part A benefits, would be exhausted in 2028. After that date, incoming payroll taxes could cover about 87% of that program's costs. The Supplemental Medical Insurance (SMI) trust fund, which supports Medicare Part B benefits, is not vulnerable to exhaustion because of how that program is financed. Part B premiums are generally set to cover about a quarter of program costs, while general revenues cover about three-quarters of program costs. Part B costs, which account for about 1.7% of GDP in FY2016, are expected to rise to about 2.7% of GDP by 2090 according to trustees' projections. As a point of comparison, defense and non-defense discretionary spending under CBO current-law projections are each expected to equal 2.7% of GDP in FY2024. The distinction between mandatory and discretionary spending stems from how Congress provides funding for each of those categories. Mandatory spending in budgetary laws is referred to as "direct spending." Mandatory spending is controlled by laws other than appropriations acts, most commonly in the form of authorizing legislation. Authorizing legislation establishes or continues the operation of a federal program or agency, either indefinitely or for a specified period. Mandatory spending typically is provided in permanent or multi-year appropriations contained in the authorizing law. Funding therefore becomes available automatically each year, without further legislative action by Congress. In most cases, the authorizing law requires payment, based on a benefit formula, to an individual or entity (e.g., a state) if eligibility criteria are met. Discretionary spending was defined as budgetary resources provided in and controlled by appropriations acts. Net interest payments, the final category of federal spending, are automatically authorized and are the government's interest payments on debt held by the public offset by interest income that the government receives. Although net interest costs are typically reported separately in budgetary estimates and projections, as a formal matter they could be considered part of mandatory spending as they are paid on the basis of a permanent authorization. The budget categories of discretionary, mandatory/direct, and net interest are often referred to as BEA categories. The BEA categories of discretionary and mandatory spending are primarily procedural classifications, in that they are used to allow evaluations of whether legislation complies with budget enforcement measures. Nonetheless, some broad, if imperfect, generalizations can be made. Most mandatory spending, as noted above, supports social insurance or income security programs, such as Social Security and Medicare. Most discretionary spending supports operations of federal agencies. In some cases, activities funded by mandatory and discretionary spending may be similar. For instance, the responsibilities of Article III federal judges, whose pay is protected by the Constitution and is thus classified as mandatory spending, resemble in many ways the responsibilities of other federal judges, whose pay is funded via discretionary spending. Some entitlement spending, such as for the Supplemental Nutrition Assistance Program (SNAP), Medicaid and certain veterans' programs, is funded in annual appropriations acts. Such entitlement spending is referred to as appropriated entitlements. The level of spending for appropriated entitlements, like other entitlements, is based on the benefit and eligibility criteria established in law.