December 18, 2014

Entitlements, Health Care Put Pressure on Rest of Budget

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

Federal spending on everything other than major health care programs (Medicare, Medicaid, and the Children’s Health Insurance Program), Social Security and net interest--will decline to historically low levels as a share of GDP in the next few decades, according to recent projections by the Congressional Budget Office (CBO).

In Fiscal 2012, spending in this “other” category -- which includes outlays for discretionary and some mandatory programs -- constituted half of the federal budget and 11 percent of GDP, in line with the 40-year historical average.

If current laws remain in place, however, this category will decline to only 7.6 percent of GDP in 2023. This is mainly due to budget caps and automatic spending reductions on discretionary appropriations through 2021.

It is doubtful, however, whether such a low level of spending on these programs is realistic and could be sustained. That’s why policymakers must also control spending on the other half of the federal budget, including Medicare, Medicaid and Social Security.

Mandatory spending in the “other” category includes unemployment compensation, retirement benefits for federal civilian employees and military personnel, veterans’ benefits and the Supplemental Nutrition Assistance Program (SNAP).

This category of mandatory spending peaked at 5.1 percent of GDP in 2009 due to the recession. It had dropped to 3.3 percent of GDP last year, and CBO expects it to decline to 2.3 percent of GDP in 2023 and continue falling after that.