Program Spending Outside Social Security and Medicare Historically Low as a Percent of GDP and Projected to Fall Further
Total federal program spending -- that is, spending excluding net interest payments on the debt -- is projected to increase as a percent of the economy (gross domestic product or GDP) over the coming decade. This growth is due to the rise in
CBPP projects, based on
* Federal program spending outside
* The rise in
See chart here (https://www.cbpp.org/research/federal-budget/program-spending-outside-social-security-and-medicare-historically-low-as-a).
Total program spending, including
Some have portrayed the growth in program expenditures as an alarming trend, though it simply reflects the fact that more people will receive
Demographics, Health Costs Drive Modest Rise in Total Program Spending
Federal program spending is expected to rise from 19.2 percent of GDP in 2018 to 20.0 percent in 2028. While these levels exceed the 18.4 percent average over the past 40 years (1978-2017), the higher levels reflect two key factors:
* The aging of the population as the baby boomers continue retiring. The share of the population aged 65 and over rose from 10.8 percent in 1978 to an estimated 15.5 percent in 2018, which helps explain why total government spending today exceeds the four-decade average. The elderly population is still growing and will reach 19.3 percent of the
* Rising per-person costs throughout the
The projected growth in
Spending Outside Social Security and Medicare on Downward Path
The general spending picture changes substantially once one looks beyond(10)
This decline reflects a substantial drop in annually appropriated, or "discretionary," programs. These programs encompass almost all of national defense and a wide variety of other federal activities, including most federal support for transportation, education, natural resources, veterans' health care, law enforcement, general government, and international programs. Expenditures for these programs are expected to fall from 6.4 percent of GDP in 2018 to 5.1 percent in 2028. In 2020 these programs are slated to reach their lowest level on record as a percent of GDP, with data going back to 1962, and they will continue dropping each year thereafter.
Discretionary funding is limited by the 2011 Budget Control Act (BCA) caps, as further reduced starting in 2013 under "sequestration," which was triggered by
Even if policymakers choose to continue the current level of discretionary funding for defense and non-defense programs, growing with inflation, over the next decade -- rather than to return to the lower levels required by the BCA caps -- program spending outside
Spending on entitlement programs outside
Rising Interest Payments Will Add to Federal Spending
As noted, net interest payments are projected to rise from 1.6 percent of GDP in 2018 to 3.0 percent in 2028. Some two-thirds of this increase reflects CBO's assumption that
While policymakers can choose to raise or lower other spending, they cannot choose to pay more or less interest on the debt. Nor can they choose the interest rates
Nation Still Faces Long-Term Budget Challenge
The bottom line is that the projected growth in federal program spending over the next decade as a percent of the economy is due to the effects on
The nation will need to address this fiscal challenge. In doing so, policymakers should accommodate spending and revenue levels somewhat higher than the historical 40-year averages to better reflect the circumstances the country faces in future decades (see box). But the portrait of an oversized federal government that is growing rapidly across the board is not accurate.
Appendix: CBPP Budget Projections
This analysis is based on CBPP spending projections for the coming decade, which we calculate by starting with CBO's projections and then making the following two changes.
First, we remove certain timing anomalies from CBO's projection. Some programs -- e.g., Medicare Part C; Supplemental Security Income (SSI); and Veterans' Compensation and Pensions -- accelerate their monthly payments by a few days if the payments would otherwise fall on a weekend. And
See chart here (https://www.cbpp.org/research/federal-budget/program-spending-outside-social-security-and-medicare-historically-low-as-a).
Fiscal year 2018 has 11 such "monthly" payments and 2028 has 13, so smoothing also makes the comparison between 2018 and 2028 expenditures, which we show in Table 1, more meaningful. Without this smoothing, 2018 program expenditures would be artificially low by
Second, CBO assumes that discretionary funding for natural disasters will grow with inflation for ten years, following formal baseline rules. But fiscal year 2018 disaster funding was quite high because of last summer's hurricanes. So we reduce projected disaster funding to a level akin to a "statistical likelihood," using alternative figures supplied by CBO. CBO's alternative projects that annual emergency non-defense discretionary funding for natural disasters will equal its average annual levels in 2012-2017, all adjusted for inflation. This knocks
See chart here (https://www.cbpp.org/research/federal-budget/program-spending-outside-social-security-and-medicare-historically-low-as-a).
Footnotes:
(1) Spending on low-income programs is decreasing as a percent of GDP and is on a path to continue declining below the historical average over the next decade. For a detailed analysis, see
(2)
(3)
(4) Based on population assumptions in the 2018 Social Security Trustees Report.
(5) Population aging will raise
(6) Health care cost growth slowed to historically low annual rates during the recession and recovery. According to the National Health Expenditure projections from the
(7)
(8)
(9)
(10) Figures for
(11)
(12) For instance, SNAP spending rose considerably during the Great Recession, leveled off in 2012 and 2013 as a percent of GDP, and started declining in 2014. CBO projects that, as the economy continues to recover, SNAP spending will fall to 1995 levels as a percent of the economy. And over the coming decade, CBO projects it will decline from 0.34 percent of GDP to 0.24 percent of GDP. For a detailed analysis of these trends, see
(13) Setting aside the timing shifts that exist under current law is akin to shifting program outlays by only a day or two, and thus does not materially alter the days on which the
House Financial Services Subcommittee Issues Testimony From Wisconsin Department of Health Services
New Principal Platform Helps Small and Medium Businesses Expand Retirement Plan Access
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News