Projected Spending - 2008 Federal Revenue and Spending Book of Charts

Federal Revenue and Spending: A Book of Charts

Section 5: Projected Spending

Entitlement Spending Will More Than Double by 2050

Pressure from entitlements, fueled by demographic changes and rising heath care costs, will cause federal spending to explode. Medicaid spending will more than double — increasing from 1.5 percent of GDP in 2005 to 3.1 percent in 2050. Medicare spending will more than triple — increasing from 2.7 percent of GDP in 2005 to 8.9 percent in 2050.

The Ratio of Elderly to Younger People Is Rapidly Increasing

As the baby boomers age, the nation’s demographic makeup will change greatly. According to the Congressional Budget Office, the population of those who are 20 to 64 years of age is projected to grow by 11 percent, whereas the population of those who are 65 or older will grow by 50 percent. This shifting ratio means that fewer and fewer people are supporting an ever-growing population of the elderly.

Mandatory Spending Consumes Growing Share of Total Spending

Since the enactment of Medicare and Medicaid by President Johnson in 1965, total mandatory spending has nearly doubled. As baby boomers retire and become eligible for Social Security, Medicare, and Medicaid, entitlements eventually will crowd out all other spending unless these programs are changed.

Entitlements Alone Will Eclipse Historical Tax Levels by 2052

Spending for the three major entitlements — Medicare, Medicaid, and Social Security — will more than double in the next 40 years. At this rate, entitlement spending will consume all federal tax revenues by 2052 without major reforms.

Raising Taxes is Not the Solution to the Entitlement Spending Tsunami

If the 2001 and 2003 tax cuts expire and the AMT is not fixed, taxes will soon grow to unprecedented levels. This will not solve the spending imbalance driven by Medicare, Medicaid, and Social Security.

Entitlement Reforms are Needed to Control Spending

If tax revenues are kept near historical levels but entitlement spending remains on autopilot, federal spending will soar to nearly 80 percent of GDP over the long term, while interest payments alone will exceed 40 percent of GDP. Within two generations, total spending will be 42 percent of GDP. To prevent the economy from reaching this unsustainable point, Medicare, Medicaid, and Social Security must be modernized so that they do not impose such a tremendous burden on future generations.

Tax Burden Is Rising to Highest Level in History

Under current law, tax revenues are expected to leap to 25.5 percent of the economy by 2082. Extending the tax cuts would shave only about 1 percentage point off of this burden. AMT and real bracket creep are the biggest drivers of this rising tax burden.

Public Debt as Share of GDP Is Below Historical Average

The current debt burden from publicly held debt is almost 8 percentage points below the historical average of 45.4 percent of gross domestic product, given today’s deficits. Future deficits driven by entitlements will push this debt to staggering levels.

Federal Budget Deficit Will Reach Levels Never Seen Before in U.S.

The budget deficit is projected to grow to 18 percent of GDP by 2082 even if the 2001 and 2003 tax cuts are allowed to expire and the AMT is not fixed. This will be driven by entitlement spending for Social Security, Medicare, and Medicaid, with deficits well above the 30-year historical average of 2.5 percent. Deficits of this size have never been seen in the U.S. and illustrate the need to reform these programs.