Mandatory Spending Makes Up the Bulk of Spending Growth
Over four-fifths of the growth in nominal spending over the next decade is driven by Social Security, federal health programs, and interest on the debt. Revenue will fail to keep pace with growing spending, resulting in a deficit that will grow from about $800 billion at the end of Fiscal Year (FY) 2018 to over $1.5 trillion at the end of FY 2028, according to the most recent outlook by the Congressional Budget Office (CBO).
Mandatory spending – especially spending on entitlement programs for retirees – is driving our spending growth. An aging population both means that there will be a greater number of elderly people eligible for benefits and the population will have more older people, who tend to have more expensive health care needs. Specifically, 27 percent of the increase in spending will come from rising Social Security payments, 23 percent from Medicare, 10 percent from other health program costs, and 21 percent from the rising cost of net interest.
Other mandatory spending programs – including spending on farm subsidies, federal retirement, food stamps, and unemployment benefits – will only account for 7 percent of the total projected spending increase. Defense, meanwhile, will make up just 5 percent of nominal spending growth and non-defense discretionary spending – a category that includes spending by most federal agencies – accounts for 6 percent of spending growth.
The modest effect of discretionary spending on spending growth is driven in part by the projected return of sequester-level caps in 2020 – following roughly $150 billion per year in cap increases set by the Bipartisan Budget Act of 2018 for FY 2018 and 2019.
Under CBO's Alternative Fiscal Scenario – which assumes that discretionary spending would grow from its 2019 level with inflation, disaster funding falls, and various tax cuts are continued – discretionary spending would account for 15 percent of nominal spending growth instead of 11 percent.
As a share of the economy, the trend of growing mandatory spending is even clearer: health, Social Security, and interest spending account for 137 percent of total spending growth. Almost all other major areas of the budget are shrinking relative to the economy.