Major Entitlement Spending Page: 1 of 2
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Congressional Research Service
Informing the legislative debate since 1914March 18, 2015
Major Entitlement Spending
The federal government faces long-term budget challenges.
Some measures of fiscal solvency indicate that, under
current policy, the United States faces a persistent future
budgetary imbalance. Projections show that this is largely
due to rising health care costs and the related increase in
government-financed health care spending.
Federal spending is divided into three broad categories:
discretionary spending, mandatory spending, and net
interest. Mandatory spending is composed of budget outlays
controlled by laws other than appropriation acts.
Entitlement programs, such as Social Security and
Medicare, make up the bulk of mandatory spending. In
contrast to mandatory spending, discretionary spending is
provided and controlled through appropriations acts. Net
interest spending is the government's interest payments on
debt held by the public, offset by interest income that the
government receives.
In FY2014, mandatory spending accounted for nearly 60%
of total federal spending and more than 12% of GDP.
Social Security alone accounted for 24% of total federal
spending. Medicare accounted for 17% of total federal
spending. Over the next decade and beyond, mandatory
spending is projected to continue rising as a share of total
federal spending and as a share of GDP.
According to CBO's extended baseline projection, federal
mandatory spending on Medicare is projected to expand
from 2.9% of GDP in FY2014 to 3.6% of GDP in FY2025
and to 9.3% of GDP in FY2089. Social Security is
projected to grow from 4.9% of GDP in FY2014 to 5.7% of
GDP in FY2025 and to 6.9% of GDP by FY2089.
Meanwhile, spending on all other federal noninterest
programs, including other mandatory programs, is projected
to fall from 11.2% of GDP in FY2014 to 10.0% of GDP in
FY2025 before increasing slightly to 10.5% of GDP in
FY2089. Although these forecasts are highly uncertain, it
seems probable that spending on large mandatory programs
will rise as a share of GDP over time.
In addition, growing debt and rising interest rates are
projected to cause interest payments to consume a greater
share of future federal spending. Under current law, CBO
projects that spending to service the federal debt (net
interest payments) will grow rapidly from 1.3% of GDP
today to 3.4% of GDP in FY2025 and to 10.0% of GDP in
FY2089. By FY2089, interest payments are projected to be
slightly higher than total Medicare spending and only
slightly lower than all other noninterest, non-Social
Security, non-Medicare spending.
Keeping future federal outlays at 20% of GDP, or
approximately at its historical average, and leaving fiscal
policies unchanged, according to CBO projections, wouldrequire drastic reductions in all spending other than that for
Medicare, Social Security, and Medicaid, or reining in the
costs of these programs. Under CBO's extended baseline,
maintaining the debt-to-GDP ratio at today's level (74%)
through FY2039 would require an immediate and
permanent cut in noninterest spending or increase in
revenues or some combination of the two in the amount of
1.2% of GDP (or about $225 billion in FY2015 alone) in
each year. Maintaining this debt-to-GDP ratio beyond
FY2039 would require additional savings. If policy makers
wanted to lower future debt levels relative to today, the
annual spending reductions or revenue increases would
have to be larger. For example, in order to bring debt as a
percentage of GDP in FY2039 down to its historical
average over the past 40 years (39% of GDP), spending
reductions or revenue increases or some combination of the
two would need to total roughly 2.6% of GDP (or $465
billion in FY2015 alone) in each year.
Figure I. Projections of Federal Spending
(% of GDP)
Social Security r Medicare All Other Spending Net Interest
2014 * l 11.2 1.3
2025 m.m 10.0 3.4
2039 M. 10.2 4.7
2089 SEs 10.5 10.0
Source: Congressional Budget Office, Updated Budget Projections:
2015 to 2025, March 2015, and The 2014 Long-Term Budget Outlook,
July 2014.
Social Security
Social Security provides monthly cash benefits to retired or
disabled workers and their family members and to the
family members of deceased workers. Of the 59 million
beneficiaries, approximately 81% are retired or disabled
workers and 19% are family members. Among retired-
worker beneficiaries, for example, the average annual
benefit is about $16,000. In 2014, the program paid $848
billion in benefits.
Workers become eligible for benefits for themselves and
their family members by working in Social Security-
covered employment. An estimated 94% of workers in paid
employment or self-employment are covered (168 million
workers), and their earnings are subject to the Social
Security payroll tax. Employers and employees each pay
6.20 of covered earnings, up to an annual limit on taxable
earnings ($118,500). Dedicated payroll tax revenues are thewww.crs.gov I 7-5700
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Major Entitlement Spending, report, March 18, 2015; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc811179/m1/1/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.