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Mandatory spending represents the portion of a nation’s budget that carries specific appropriations or mandates. This spending is typically difficult to reduce, as programs carry over the same budget each year. Governments can renew this spending without having to pass new laws to continue financing projects. Classic types of mandatory spending include entitlement programs, national healthcare systems, government insurance programs, welfare support and regulatory agency programs. In some cases, governments may be able to institute a basic increase annually for programs.
Governments often work on a fund-style accounting system. This process includes funds for each type of spending program or agency. Fund accounting works with the mandatory spending programs dictated by law. Each fund receives a specific amount of capital from the revenue generated from tax revenues. Government accountants appropriate the funds based on specific percentages found in the budget based on the law. It is often difficult to reduce mandatory spending because once the government designates money for various funds, the money cannot be spent on other projects.
The opposite of mandatory spending is typically called discretionary spending. Many governments deposit capital from tax revenue into a general fund. Lawmakers can appropriate this income as they see fit when creating budgets. Governments can reduce discretionary spending by dropping programs from the budget or reducing funding. This often doesn't go far to resolve budgetary issues, however, because discretionary spending represents far less of a nation’s budget than mandatory spending. This is because most nations and government bodies desire spending programs to continue in perpetuity.
To reduce mandatory spending, governments must pass laws or create major reforms to how existing programs are funded. This process is often difficult, as few politicians want to be associated with taking money away from welfare recipients or other beneficiaries of government programs. In some cases, it may be nearly impossible to completely repeal a law that includes specific spending mandates. The process may include multiple changes or updates to the initial law, and these changes may incite protests and even any lawsuits against the proposed legislation. With this in mind, lawmakers must decide the best methods for reducing spending, which may include removing significant portions of law or attempting a full repeal of the law to completely stop the spending.
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