Some of the largest spending programs in the federal budget are also the most difficult to cut from. For reasons both practical and political, spending in these categories continues to grow even as the nation faces what many consider to be a dire financial forecast. The Congressional Budget Office examined the implications of continued spending increases in its Budget and Economic Outlook for Fiscal Years 2011 to 2021, released in January.
Social Security, the largest federal spending program, provides cash benefits to the elderly, people with disabilities, and their dependents. Nearly 53 million people received Social Security benefits in 2010, up from 51 million the previous year. Over the next decade, spending for Social Security benefits will climb steadily as the nation’s elderly population grows and as the amount of average benefits rise. By 2021, more than 71 million people are projected to collect Social Security benefits. Proposed solutions for reforming Social Security have included increasing the retirement age, privatizing individual accounts, reducing cost of living benefits, and raising the payroll tax rate.
2011: $727 billion (4.8% of GDP)
2021: $1.3 trillion (5.3% of GDP)
The Medicare program provides subsidized medical insurance for the elderly and for some people with disabilities. Medicare’s three parts cover hospital insurance, medical insurance, and prescription drugs. People generally become eligible for Medicare at age 65 or two years after they qualify for Social Security disability benefits. In 2010, Medicare had about 47 million beneficiaries; that number is expected to climb by about 3 percent per year over the next decade, reaching 64 million by 2021.
2011: $572 billion (3.8% of GDP)
2021: $1 trillion (4.3% of GDP)
Trends in discretionary spending during the past few decades have been heavily influenced by spending on defense. The three largest categories of funding within the Department of Defense include funding for operations and maintenance ($296 billion), military personnel ($152 billion), and procurement ($132 billion). Other spending goes toward research and development, military construction, atomic energy, and various other programs. Since September 2001, lawmakers have provided almost $1.3 trillion in budget authority for operations in Afghanistan and Iraq and related activities, such as training local security forces and providing foreign aid.
2011: $712 billion (4.7% of GDP)
2021: $869 billion (3.6% of GDP)
A variety of exclusions, deductions, and exemptions in federal income taxes cause the base of taxable income to be significantly smaller than the income reported on tax returns. Gross income totaled $8.4 trillion in 2008, but once the allowable deductions and exemptions were subtracted, total income subject to tax was $5.7 trillion—just 67 percent of gross income.
The most widely used deductions are for mortgage interest and property taxes on owner-occupied homes. Over the five years from 2010 through 2014, the forgone revenues from the mortgage interest and property tax deductions are projected to total about $484 billion and $121 billion, respectively.
In December, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended for two years the tax cuts implemented during the George W. Bush administration. The act is expected to add a net total of $858 billion to the national deficit between 2011 and 2020.
Forgone Revenues, 2010–2014
Mortgage interest deduction: $484 billion
Property tax deduction: $121 billion
Estimated Budgetary Effects of the 2010 Tax Act
2011–2020: $858 billion added to deficit
Source: Congressional Budget Office, “Budget and Economic Outlook for Fiscal Years 2011 to 2021,” January 2011