Fact Sheet on Senate Budget Process: RS20129

Entitlements and Appropriated Entitlements in the Federal Budget Process

Bill Heniff Jr., Consultant in American National Government
Government Division
March 24, 1999

Entitlements are programs that require the payment of benefits to persons, state or local governments, or other entities if specific criteria established in the authorizing law are met. Entitlement spending currently comprises more than half of total federal spending, and, as a share of total outlays, it is growing faster than other types of spending. Spending on entitlements is not controlled directly through the annual appropriations process. Instead, entitlement spending is based on the benefit and eligibility criteria established in law, and the total spending is determined by the aggregate total of all individual benefits. Since most entitlement spending is required by permanent laws, the level of spending on these programs is often referred to as mandatory or direct spending. Congress and the President have created procedures to control entitlement spending through the congressional budget process and the sequestration process.

Most entitlement spending bypasses the annual appropriations process altogether and is funded by permanent appropriations in substantive law. Such spending becomes available automatically each year, without legislative action by Congress. Social Security, Medicare, and federal employee retirement are examples of such programs. A portion of entitlement spending, such as Medicaid and certain veterans' programs, is funded in annual appropriations acts; such programs are referred to as appropriated entitlements. Spending for appropriated entitlements is not controlled through the annual appropriations process.

Entitlement Spending and
the Congressional Budget Act

The Congressional Budget Act (CBA) of 1974 (titles I-IX of P.L. 93-344) provides for an annual budget resolution as the framework for subsequent budgetary legislation. The budget resolution includes aggregate amounts of spending, revenues, and the debt limit for at least five fiscal years. The total spending includes spending for entitlement programs.

Section 303(a) of the CBA prohibits consideration of any new entitlement legislation prior to the adoption of a budget resolution. Once a budget resolution has been approved by Congress, entitlement spending is subject to the same controls as discretionary spending. Section 311 of the CBA prohibits consideration of any new entitlement legislation (or amendment) that would cause the aggregate spending levels to be exceeded. Also, any new entitlement legislation (or amendment) that would cause the section 302(a) committee allocation amounts to be exceeded is prohibited from consideration. This is enforced through a point of order under section 302(f) of the CBA.

In addition to these general spending controls, Congress usually uses the reconciliation process to produce significant changes in the existing permanent laws of entitlement programs. This process requires the legislative committees responsible for the entitlement programs to recommend legislative language to achieve the spending levels allocated to them under section 302(a) consistent with the reconciliation instructions in the budget resolution. Reconciliation allows Congress to package these changes into one measure, which then is considered under expedited procedures that limit debate and place restrictions on amendments.

For more information on reconciliation, see CRS Report 98-814 GOV, Development and Consideration of Budget Reconciliation Legislation.

Entitlement Spending and
the Pay-As-You-Go Process

In 1990, Congress established a control mechanism for new entitlement spending. The Budget Enforcement Act (BEA) of 1990 (title XIII of P.L. 101-508) created pay-as-you-go (PAYGO) rules that apply to new direct spending and revenue legislation for the purpose of holding Congress and the President accountable for any increase in the deficit (or reduction in the surplus) due to legislative action. Social Security benefits, federal deposit insurance guarantee commitments, and any direct spending the President and Congress designate as an emergency requirement is excluded from the PAYGO process. Under these procedures, any increase in direct spending resulting from new legislation must be offset by direct spending reductions, revenue increases, or a combination of both.

For more information on PAYGO rules, see CRS Report RS20006, Pay-As-You-Go Rules in the Federal Budget Process.

The PAYGO rules are enforced primarily by the sequestration process established by the 1985 Balanced Budget and Emergency Deficit Control Act (title II of P.L. 99-177), as amended by the 1990 BEA. If the net effect of new legislation enacted during a congressional session causes an increase in the deficit (or a decrease in the surplus) the President is required to issue an order for an across-the-board cut in entitlement programs. Exempt programs include those excluded from PAYGO calculations, such as Social Security, as well as others, such as most veterans' benefits. While most entitlements are included in the PAYGO calculations, the majority are exempt from reduction (see section 255 of the Deficit Control Act, as amended, for a list of exempt programs).

For more information on the sequestration process, see CRS Report RS20007, The Sequestration Process.

Similar PAYGO rules also may be enforced in the Senate by a point of order. The free-standing point of order, established by the FY1996 budget resolution, prohibits the Senate from considering any direct spending or revenue legislation that would violate PAYGO requirements by increasing the deficit for the first fiscal year, the period of the first five fiscal years, or the following five fiscal years, covered by the most recently adopted budget resolution. The Senate may waive this point of order by a three-fifths vote under procedures established by section 904 of the CBA, or by unanimous consent.