Committee for a Responsible Federal Budget
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Social Security, Health, and Interest Spending Account for Four-Fifths of Spending Growth

Oct 20, 2016 | Budgets & Projections

The deficit will rise dramatically over the next decade, from about $590 billion at the end of Fiscal Year (FY) 2016 to over $1.2 trillion at the end of FY 2026 due to rising spending and inadequate revenues, according to the August budget and economic outlook by the Congressional Budget Office (CBO). Over 80 percent of the increase in spending will be due to the rising costs of three areas of the budget: Social Security, major health care programs, and interest on the debt.

CBO projects health care spending will increase by nearly $800 billion over the next ten years, with Medicare making up approximately 60 percent of the increase. Social Security is also projected to grow by almost $700 billion. These two areas of the budget account for almost two-thirds of the estimated spending growth. Meanwhile, interest spending will increase $460 billion over the next decade, accounting for another fifth of the budget's expansion.

All other areas of the federal budget, including defense, education, farm subsidies, foreign aid, federal employment, infrastructure, welfare and unemployment benefits, and homeland security, will only account for 18 percent of the total projected spending increases.

Mandatory spending is projected to grow by almost 70 percent – much faster than the economy. Both federal health spending and Social Security are expected to grow by about 75 percent in nominal terms, while interest costs are expected to nearly triple. Meanwhile, the economy will grow slightly less than 50 percent between 2016 and 2026.

Interest spending is expected to grow because of the rising national debt – forecasted to increase by approximately $9 trillion by 2026 – and interest rates rising from today's historically low levels. Growing Social Security and health costs are driven by the aging demographics of the population, with lower birth rates, retiring baby boomers, and rising life expectancy. Moreover, per-person health care spending has historically grown faster than the economy, and this excess cost growth is projected to continue.

Although discretionary spending and spending on certain other mandatory programs will decrease as a percentage of Gross Domestic Product (GDP) over the next decade, overall spending will increase by 2 percentage points, reaching 23.1 percent of GDP by 2026. Social Security and health care spending will increase by 1.0 and 1.2 percentage points, respectively, and interest spending will grow from 1.4 percent to 2.6 percent of GDP.

The budget is increasingly being taken up by mandatory programs, crowding out investments in other areas of the budget. Lawmakers should enact both entitlement and tax reforms to return our nation to a fiscally sustainable path.