ECONOMICS TOPIC 8 LESSON 3

ECONOMICS TOPIC 8 LESSON 3

Federal Spending

ESSENTIAL QUESTION

Can and should the government be fair to everyone?

OBJECTIVES

Analyze categories of expenditures in the U.S. federal budget.

Describe major entitlement programs.

Identify major types of discretionary spending in the federal budget.

Mandatory and Discretionary Spending

In reality, when the government considers the huge sum of money it collects to fund the budget, most of it is already accounted for. After the government fulfills all its legal obligations, only about a third of the money remains to be spent.

Mandatory and Discretionary Spending

Some categories, such as Social Security and Medicare, are mandatory. Mandatory spending refers to money that Congress is mandated, or required, by existing law to spend on certain programs or to use for interest payments on the national debt.

Open Ended

Analyze Graphs What is the largest spending category in the budget represented here?

Mandatory and Discretionary Spending

Other categories, such as defense and education, are discretionary. Discretionary spending is spending about which lawmakers are free to make choices.

Multiple Choice

Check Understanding The portion of the budget about which lawmakers today make year-to-year spending decisions is approximately

• two thirds of the budget.

• all of the budget.

• one third of the budget.

• one half of the budget.

Government Entitlements

 Entitlements are social welfare programs that people are “entitled to” and benefit from if they meet certain eligibility requirements, such as being at a particular income level or age. The federal government guarantees assistance for all those who qualify. As the number of people who qualify rises, mandatory spending rises as well.

Government Entitlements

 Social Security

Social Security makes up a huge portion of all federal spending. About 58 million Americans receive monthly benefits from the Social Security Administration. Of those beneficiaries, some are disabled workers, but the great majority are retired workers.

Government Entitlements

Medicare

Medicare serves about 47 million people, most of them over 65 years old. The program pays for hospital care and for the costs of physicians and medical services. It also pays healthcare bills for people who suffer from certain disabilities and diseases.

Government Entitlements

Medicaid

Medicaid benefits low-income families, some people with disabilities, and elderly people in nursing homes. It is the largest source of funds for medical and health-related services for America’s poorest people. The federal government shares the costs of Medicaid with state governments.

Other Mandatory Spending Programs

Other means-tested entitlements benefit people and families whose incomes fall below a certain level. Requirements vary from program to program. Federal programs include the Supplemental Nutrition Assistance Program and the National School Lunch Program.

Other Mandatory Spending Programs

The federal government also pays retirement benefits and insurance for federal workers, as well as veterans’ pensions and unemployment insurance.

Multiple Choice

Describe What key issue challenges the largest entitlement programs in the United States?

• an aging population

• skyrocketing rates of taxation

• a shrinking number of beneficiaries

• lack of public support for aiding retirees

Spending on Discretionary Programs

Defense Spending

Of the categories of discretionary spending, defense spending is the largest.

Open Ended

Analyze Graphs About what percentage of discretionary spending went to defense in the budget year shown?

Other Discretionary Spending

Look again at the Figure  After mandatory and defense spending, you may be surprised at how small a portion of federal spending goes into the category that could be labeled “everything else.” 

Federal Aid to State and Local Governments

Some federal tax money finds its way to state and local governments—much of it from the discretionary portion of the federal budget. In 2011, about $625 billion in federal grants went to the states. This is an average of about $2,000 per person and represents nearly 40 percent of state and local expenditures.

Multiple Choice

Identify About how much of the federal government’s discretionary spending currently goes toward defense?

• about one eighth

• about one fourth

• about half

• about three fourths

Open Ended

Can and should the government be fair to everyone?