Appropriations Bill Adds Fake “Emergency” Spending

https://www.cato.org/blog/appropriations-bill-adds-fake-emergency-spending

Romina Boccia and Dominik Lett

Within weeks of passing new discretionary spending limits, Congress is proposing to increase deficits by abusing emergency designations to prop up agency budgets.

The May Fiscal Responsibility Act established caps on discretionary funding, but provided an exception for spending designated as “emergency.” And now the leaders of the Senate Appropriations Committee have said they plan on going around debt ceiling caps by adding $8 billion for defense and $5.7 billion for non‐​defense emergencies.

Is the added spending really for emergencies?

Let’s look at the Commerce, Justice, and Science (CJS) appropriations bill to see whether its $2.4 billion in emergency spending really is urgent and disaster‐​related.

Science and technology

The Commerce, Justice, and Science appropriations bill (S.2321) provides $1.2 billion of emergency spending for science and technology agencies (see Table 1). Of that total, the National Space and Aeronautics Administration (NASA) receives $296 million for infrastructure and compliance with environmental regulations—70 percent of NASA’s entire budget for construction and environmental compliance. The National Science Foundation receives a whopping $420 million for unspecified “research.”

Building vehicles, constructing new facilities, and doing research are all well within the purview of normal operations for scientific agencies. Federally funded mission research, like that done by the National Science Foundation, has a long and useful history, but it is not without its limitations. Federal research and development subsidies can crowd out private R&D, leading to worse returns on investment. Congress should justify spending taxpayer dollars that could be more productively used in the private sector, especially if designating them for emergencies, which allows for spending in excess of agreed‐​upon cap levels.

Law enforcement and criminal justice

Law enforcement receives nearly $1 billion in emergency spending (see Table 2)—half of that is for the broad category of “salaries and expenses.” All funding for local and state law enforcement grants for presidential nominating conventions—a full $100 million—is designated as emergency spending. Likewise, 86 percent of infrastructure funding for federal prisons—$179 million—is designated as emergency spending.

None of these line items are unexpected, sudden, or temporary. Salaries, expenses, and recurring predictable events like presidential nominations fall within normal budgetary operations. Law enforcement agencies deserve the same funding scrutiny that other agencies receive. For FY24, Senate appropriators plan on providing $38 billion to federal law enforcement agencies. Most of the year‐​to‐​year spending increases for law enforcement were provided through the abuse of emergency designations. If law enforcement requires additional resources, Congress should provide these through regular appropriations.

Economic aid

The Economic Development Administration (EDA) receives $25 million in emergency spending. EDA’s track record of poor performance merits spending cuts, not increases. As Cato’s Chris Edwards argues, “Federal funding of local projects is inefficient for many reasons, and it is not affordable given ongoing federal deficits of more than $1.5 trillion a year.”

Congress is supposed to first authorize programs and then appropriate taxpayer dollars. Increasingly, Congress skips the first part, reducing oversight and allowing for more wasteful spending. EDA’s authorization lapsed in 2008, yet Congress plans to spend $1.4 billion for FY24 on it. EDA is a ripe target for elimination. If Congress chooses to continue funding its operations, it should first re‐​authorize it and then fund it with regular appropriations.

Reject unwarranted emergency spending

Escape valves for urgent, sudden needs are necessary for statutory spending limits to operate effectively. However, abuse of emergency spending to prop up agency budgets, as Senate appropriators are proposing, undermines trust in the federal government’s fiscal commitments and contributes to a worsening fiscal trajectory.

A wide range of promising reforms are available to address the abuse of emergencies. One such option: notional emergency spending accounts. Using a similar mechanism as CUTGO, Congress could account for emergency spending and offset it, reducing future abuse, increasing transparency, and strengthening fiscal responsibility. Tracking emergency spending (and associated interest costs) and reducing discretionary limits over the following five years would deter irresponsible emergency spending and incentivize forward‐​looking budgetary planning.

Emergency designations are a mechanism to avoid the difficult but important process of considering budgetary trade‐​offs. They evade spending limits, reducing oversight, promoting waste, and contributing to America’s growing debt crisis. In 2018, a pre‐​pandemic Congress produced the same appropriation bill without a single emergency designation. Congress is capable of budgeting more responsibly. Legislators should reject unjustified and unnecessary emergency spending.

National Security Implications of Unsustainable Spending and Debt

https://www.cato.org/blog/national-security-implications-unsustainable-spending-debt

Romina Boccia and Dominik Lett

Congress is in the midst of debating the annual defense spending bill and chances for completion before the August recess look bleak. The multitrillion‐​dollar increase in the debt limit, which Congress passed in early June following months of negotiations, established budget levels for defense and nondefense appropriations for the next two years. The parties remain divided on the details.

Spending debates that are contentious now will likely get worse in future years, as the current fiscal trajectory will place inevitable constraints on America’s military. Without reforms to health care and retirement benefits, other domestic and defense priorities will be increasingly squeezed. As debt levels and associated interest costs rise, economic growth will suffer. And as the share of the budget dedicated to autopilot entitlement spending expands, reduced fiscal capacity will further increase budgetary conflict over the shrinking portion of discretionary spending that Congress allocates each year.

Congress only debates 28 cents of every dollar it spends; the vast majority of federal spending goes out without congressional deliberation, primarily funding programs like Medicare, Medicaid, and Social Security, among other entitlements. A new mechanism is needed to reform entitlement spending and avoid a future fiscal crisis before it’s too late.

Erosion of economic power

According to the Congressional Budget Office’s (CBO’s) latest long‐​term budget outlook, publicly held debt will grow from 98 percent of gross domestic product (GDP) to 181 percent of GDP by 2053. Most economic research finds that excessive public debt reduces economic growth, with dampening effects kicking in around debt reaching 78 percent of GDP.

There are many benefits of a robust economy including a higher standard of living. A strong domestic economy is also critical for supporting national security. Prominent national security leaders, including former Secretaries of State, Defense, Treasury, and Homeland Security across eight Republican and Democratic administrations, were recently gathered by the Peterson Foundation’s Coalition for Fiscal and National Security. They argue that:

“[L]ong-term debt is the single greatest threat to our national security…This debt burden would slow economic growth, reduce income levels, and harm our national security posture. It would inevitably constrain funding for a strong military and effective diplomacy, and draw resources away from the investments that are essential for our economic strength and leading role among nations.”

Delaying responsible fiscal reforms in the face of growing federal debt invites economic and national decline. High and rising U.S. federal debt leads to suppressed private investment, reduced incomes, and increased risk of a sudden fiscal crisis. A weaker economy and growing concerns by international bondholders of U.S. treasuries about the government’s ability and willingness to service its debt—without resorting to high inflation—will drive up interest costs and eventually impact America’s international standing negatively.

While investors continue to gobble up U.S. debt, which now exceeds $25 trillion, the $114 trillion in additional deficits CBO projects over the next 30 years pose serious questions about whether there will be enough appetite for markets to absorb such high levels of government debt. Troubling too is how much productivity‐​enhancing private investments will suffer because of crowding out. The prudent choice is to restore fiscal sustainability during times of peace and economic strength, reversing America’s unsustainable debt crisis while it’s still possible.

National defense is a core responsibility of the federal government. To maximize Americans’ safety and prosperity, prudence should guide both strategy and the budget. A dire fiscal crisis would erode the economic foundation of America’s strength, limiting U.S. capacity to defend its vital interests at home and abroad.

Crowding out of defense spending as a budget priority

Entitlements are increasingly dominating the federal budget. Since 1962, Social Security, Medicare, Medicaid, and other income security programs such as food stamps have grown four times larger as a share of GDP and consume more than half of the federal budget. By comparison, defense spending declined by a factor of three as a share of GDP, from 9 percent of GDP in 1962 to 3 percent of GDP by 2022. Defense spending makes up less than one‐​fifth of the budget, despite growing in real, inflation‐​adjusted terms as entitlement spending has claimed an increasing share of the taxpayer burden. In real terms, annual defense spending has increased by nearly $200 billion between 1962 and 2022. Meanwhile, annual entitlement spending has grown by $3.3 trillion over the same timeframe. The graphic below shows how entitlements have grown to consume a greater share of total non‐​interest spending over time.

As entitlements consume a larger share of the budget, this exerts downward pressure on other budget priorities. Former Principal Research Scientist for Massachusetts Institute of Technology’s Security Studies Program Cindy Williams explains,

“Absent significant reform or a major expansion of the total federal budget, the rising costs of Social Security, Medicare, and Medicaid will continue to crowd out defense spending. In the extreme, if federal budgets are held near today’s levels as a share of GDP, nondefense discretionary spending is not reduced significantly, and mandatory spending is not brought under control, there will soon be no money left for defense.”

Defense has also been a prime target for cuts across several congressional efforts to reduce government spending. The Manhattan Institute’s Brian Riedl examined 14 major deficit‐​reduction negotiations since 1980. More than any other category, legislators tend to reduce defense spending during fiscal consolidation periods. Cuts to defense discretionary spending produced the largest savings in four of six deficit‐​reduction deals. Despite entitlements primarily driving rising deficits, mandatory spending reforms in these deals were modest at best. It seems politically easier to keep targeting discretionary spending for cuts than to tackle the key driver of rising spending: entitlements.

For those in favor of restraining the scope of U.S. military engagement, a fiscally restrained government may have some upside. Cato’s Justin Logan and former Cato research fellow Ben Friedman argue that depressed economic growth and rising interest rates driven by high debt could make the defense budget an increasingly likely target for cuts. Logan and Friedman write,

“The U.S. military of the 2010s and 2020s will likely have a moderately less ambitious strategy and smaller budget than that of last decade. But the ambitions will still be hegemonic and the budget massive, hardly those of a normal country concerned chiefly with its own affairs. Unfortunately, the old Bolshevik saying, ‘‘the worse, the better’’ may apply for those seeking to rein in American military ambition. Ironically, we are left to push for military restraint while rooting against the conditions liable to produce it.”

In this way, a smaller U.S. defense budget would put real limits on unnecessary and self‐​defeating American military activities overseas by, constraining American legislators. Paradoxically, some level of defense budget constraints could improve U.S. national security by reducing our involvement in military conflicts that are not in America’s national interest.

Apply a defense savings mechanism to the broader budget

The United States’ unsustainable fiscal trajectory is almost entirely driven by rising interest expenses and entitlement spending. Legislators must work together to reform the major entitlement programs to avoid a potential debt crisis, massive tax increases, and lagging economic growth. One idea gaining traction is a debt commission to assist legislators with adopting budget reforms to stabilize the growth in the debt.

The 1988 Base Realignment and Closure Act (BRAC) successfully addressed the politically thorny issue of closing military bases and can serve as a model for Congress’s debt commission. BRAC established an independent commission to select military bases for closures, with recommendations that were approved by the President being adopted by default in Congress unless legislators successfully passed a resolution of disapproval. BRAC successfully bypassed special interest politics and congressional gridlock to free up funding for more essential defense priorities. Congress should consider establishing a BRAC‐​like, independent fiscal commission to recommend changes to stabilize the debt at no more than 100 percent of GDP over the next 10 years.

A well‐​designed commission will be composed of a diverse group of experts, guided by clear goals established by Congress, and whose recommendations will be self‐​executing after Presidential approval; benefitting from so‐​called fast‐​track authority. Asking members of Congress to affirmatively vote for entitlement reforms recommended by such a commission will most likely undermine the debt commission’s recommendations from becoming law. Few legislators are willing to stick their necks out in support of necessary and yet unpopular changes to Medicare and Social Security.

Unsustainable fiscal policy imperils American economic and military strength. By reforming entitlement programs and reducing spending, legislators can prevent high debt from undermining America’s prosperity and security. A well‐​designed debt commission can help Congress to see this through.

CBO Projects Challenging Fiscal Future in Long‐​Term Budget Outlook

https://www.cato.org/blog/cbo-projects-challenging-fiscal-future-long-term-budget-outlook

Romina Boccia and Dominik Lett

The Congressional Budget Office’s (CBO) latest 30‐​year budget projections forecast rising debt, deficits, and interest costs. Rising spending on old‐​age entitlement programs, primarily Medicare and Social Security, is mostly to blame. Legislators should act now to make gradual changes to achieve a sustainable budget policy and avert a future fiscal catastrophe.

The Fiscal Responsibility Act (FRA), which suspended the debt limit until 2025, has been championed by President Biden and House Speaker McCarthy as a major success. Its primary achievement is a far cry from adopting a sustainable fiscal policy. The deal averted a self‐​imposed debt limit crisis but did so with a budget sleight of hand, as side deals and loose spending caps will undermine the FRA’s modest deficit reduction. Even assuming CBO’s charitable score of $1.5 trillion in deficit reduction from full implementation of the FRA, federal debt is still projected to exceed historic highs within this decade.

CBO warns that “high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.” Lawmakers should heed CBO’s warnings and adopt a credible fiscal plan that will keep U.S. publicly held debt below the size of the economy. Annual spending is projected to grow from more than $6 trillion to $23 trillion (before adjusting for inflation) over the next 30 years. Without fiscal reforms, the government will accumulate $119 trillion in additional deficits and end 2053 with debt at 181 percent of GDP. To avoid more painful and likely more chaotic austerity in the future, policymakers should correct course by restraining entitlement spending growth today.

Here are key highlights from CBO’s 30‐​year forecast report:

Debt grows to 181 percent of GDP by 2053

As a percentage of the country’s yearly economic output, federal public debt (the debt borrowed from credit markets) is currently 98 percent of GDP—about $96,000 for every person in America. In just six years, public debt is projected to surpass its all‐​time World War II high of 106 percent. By 2033 (ten years from now), public debt will reach 115 percent of GDP. By 2053 (30 years from now), public debt is projected to surpass 180 percent of GDP. Such high debt levels have never before been recorded in U.S. history.

Interest costs triple to 6.7 percent of GDP by 2053

Between 2023 and 2053, interest costs are projected to grow from 2.5 percent to 6.7 percent of GDP. Interest costs are projected to grow more rapidly than most other budget categories. By 2047, net interest payments will be larger than all discretionary spending combined. In other words, interest costs will exceed combined government spending on defense, education, transportation, agriculture, energy, and more. For these projections, CBO assumes an average 4 percent interest rate on 10‐​year Treasury notes—the projected rate for 2023 is 3.9 percent. Were interest rates just one point higher than projected in 2053, interest costs that year would rise to 8.4 percent of GDP—an increase of $1.4 trillion for that year.

Entitlement spending drives unsustainable growth in federal debt

Between 2023 and 2053, total federal spending will increase from 24.2 percent to 29.1 percent of GDP. That’s nearly one‐​third higher than the 30‐​year historical spending average (21 percent of GDP), spanning 1992–2022. Major entitlements, like Social Security and Medicare, are almost entirely responsible for non‐​interest spending growth. In 2023, Social Security’s and Medicare’s combined contribution to the deficit was 2.1 percent of GDP. By 2053, their annual deficit contribution will be 5.4 percent of GDP. That’s more than half or 54 percent of the total deficit in 2053 due to spending on Social Security and Medicare (assuming additional borrowing past trust fund exhaustion and no other policy changes).

Obvious solutions to restrain excess entitlement spending growth include reducing retirement and health care subsidies for wealthier individuals, adjusting eligibility ages for old‐​age entitlements with improvements in health and life span, and preserving current benefits by adjusting for inflation while stopping excess benefit growth.

Social Security’s Old‐​Age and Survivors Insurance (OASI) and Medicare’s Part A Hospital Insurance (HI) trust funds—which are more akin to financial ledgers than funds with real assets—are both projected to exhaust their borrowing authority in less than 10 years. Medicare’s HI trust fund will be depleted by 2035 (other estimates place the exhaustion date at 2031). For Social Security’s OASI, scheduled benefits can continue uninterrupted up to 2033. After borrowing authority is exhausted, Medicare and Social Security benefits would be indiscriminately cut by 11 and 23 percent, respectively, if Congress fails to act. Waiting until the 11th hour will leave legislators with few options to avoid steep benefit cuts and harmful tax increases.

Congress and the President must work together to stabilize spending and debt

Given that debt is projected to grow by 85% (nearly doubling) over the next 30 years as a percentage of GDP, the savings from the 2023 debt limit deal are a drop in the bucket. The FRA adopted spending limits governing less than 30 percent of the federal budget. As Rep. Womack (R‑AR) points out, “70% of this whole federal budget is on autopilot right now.”

More than $8 trillion in savings will be necessary to stabilize the debt over the next 10 years. Political considerations over entitlement changes and how these will play out electorally have delayed inevitable reforms for far too long. Americans in and near retirement age are the most active at the voting booth, and they also stand to be hurt the most should Congress allow indiscriminate benefit cuts to take place over the next 10 years.

One promising proposal is to establish a BRAC‐​like fiscal commission to empower an independent body of experts to put forth policies to stabilize the federal debt. A well‐​designed commission will be composed of independent experts with diverse viewpoints, who are tasked with a clear goal, such as stabilizing the public debt at no more than 100% of GDP over the next 10 years, and whose recommendations will be self‐​executing in Congress through a similar fast‐​track mechanism that allowed the Base Realignment and Closure (BRAC) commission to be successful. A BRAC process can overcome political gridlock by providing legislators with cover from delegating entitlement reform to outside experts.

If policymakers continue to put serious fiscal reform on the back burner, the severity and scope of necessary reforms will grow. High and rising debt causes a significant drag on the economy and threatens America’s fiscal and economic future. Delay is costly and risky. Congress and the President should act soon.

Fast Facts about Mandatory Spending

https://www.cato.org/blog/fast-facts-about-mandatory-spending

Romina Boccia and Dominik Lett

The federal government will spend $6.3 trillion in 2023, 73 percent is categorized as mandatory and 27 percent as discretionary. Mandatory spending refers to federal programs that are funded outside of annual appropriations, including Social Security, Medicare, and food stamps (SNAP). Mandatory spending also includes interest spending on the federal debt. Mandatory spending is typically ongoing and determined by statutory formula, meaning it continues from year to year, unless Congress changes the underlying law. This fact sheet lays out key details legislators and the public should know about mandatory spending.

  • Mandatory spending accounts for three quarters of all federal spending, that’s $4.6 trillion in 2023 or 17.6 percent of gross domestic product (GDP).

    • The federal government will spend $35,000 in mandatory spending for every U.S. household in 2023.

    • Between 1973 and 2023, mandatory spending’s budgetary share grew from 47 percent to 73 percent of total federal spending.
    • Between 1973 and 2023 mandatory spending doubled from 8.5 percent of GDP to 17.6 percent of GDP.

    • Mandatory spending is growing as a share of the overall budget, primarily due to the growth of major entitlement programs like Social Security and Medicare.

    • Mandatory spending will reach $7.4 trillion or 19 percent of GDP by 2033 according to projections by the Congressional Budget Office (CBO).

  • Most mandatory spending is for major entitlements like Social Security, Medicare, and Medicaid.

    • Social Security spending will grow from $1.4 trillion or 5.1 percent of GDP in 2023 to $2.4 trillion or 6 percent of GDP.

    • Medicare, excluding offsetting receipts such as premium payments, will spend $1 trillion in 2023.
    • Medicaid will spend $589 billion in 2023.

    • Major health care programs when combined make up the largest category of federal spending, spending $1.7 trillion in 2023 or 6.5 percent of gross domestic product (GDP).

    • Major health care spending will increase to $3 trillion or 7.8 percent of GDP by 2033. That’s almost three times what the U.S. government will spend on defense that year.

    • Spending for income security programs, including food stamps (SNAP) and unemployment compensation, will reach $413 billion in 2023.

    • Net interest spending and means‐​tested entitlements like food stamps, welfare, and Medicaid, grew the fastest.

  • Interest spending on the federal debt is categorized as mandatory spending.

    • Interest costs on the federal debt are projected to grow faster than any other category of spending.

    • In 2023, net interest spending will reach $663 billion or 2.5 percent of GDP.

    • By 2033, interest costs are projected to double to $1.4 trillion or 3.7 percent of GDP. That’s 20 percent of total federal revenues in 2033.

    • By 2052, net interest costs are projected to rise to 7.2 percent of GDP. That would be higher than spending on Social Security or all discretionary spending.

    • If interest rates were 1 percentage point higher than projected, cumulative interest costs would increase by $3 trillion over 10 years.

  • Mandatory spending is the primary driver of the U.S. fiscal imbalance.

    • Nearly 60 percent of the federal government’s long‐​term structural fiscal imbalance is the result of legislation enacted between 1965 and 1972 pertaining to Medicare, Medicaid, and Social Security.

    • Together, major entitlement programs and interest will be responsible for 82 percent of projected spending growth over the next 10 years.

    • Over the next 75 years, Medicare and Social Security are responsible for 95 percent of the total unfunded obligation (the present value of non‐​interest spending less receipts).

    • Four of the five largest federal budget functions are mandatory spending; only one of the five largest budget functions is subject to regular review and spending limits: national defense.

Further reading:

  • Why We Have Federal Deficits: An Updated Analysis, by Charles Blahous

    “Nearly three‐​fifths of the federal government’s long‐​term structural fiscal imbalance derives from legislation enacted between 1965 and 1972, including the enactments of Medicare and Medicaid in 1965, expansions of Medicare and Medicaid in 1971–72, and substantial increases in Social Security benefits in 1972.”

  • Designing a BRAC‐​Like Fiscal Commission To Stabilize the Debt

    “A well‐​designed BRAC‐​like process will be an effective tool for reducing government spending while also respecting Congress’s constitutional authority.”

  • How a Better Budget Control Act Would Limit Spending and Control Debt

    “An independent, nonpartisan commission can help Congress overcome entitlement reform gridlock by providing politicians with political cover to approve the necessary changes sooner. [That] allows for more gradual changes to old‐​age entitlement programs that preserve benefits for the most vulnerable seniors without economically damaging tax increases on American workers.”

Download a printable PDF version of this fact sheet here.

For other fact sheets on the U.S. federal budget see:

Fast Facts about Discretionary Spending

https://www.cato.org/blog/fast-facts-about-discretionary-spending

Romina Boccia and Dominik Lett

The federal government will spend $6.3 trillion in 2023, 27 percent is discretionary and 73 percent is mandatory. Discretionary spending refers to federal programs that receive funding through annual appropriations. Less than half of discretionary spending is for defense. More than half is for nondefense activities including education, infrastructure, scientific research, and other programs. If Congress does not pass annual appropriations bills before October 1st (the beginning of the federal fiscal year), the government undergoes a partial “shutdown” where non‐​essential functions are halted until Congress enacts new funding bills. Congress may also enact a continuing resolution (CR) which temporarily continues the previous fiscal year’s level of funding. In contrast, mandatory spending refers to federal programs that are funded outside of annual appropriations, including Social Security, Medicare, and food stamps (SNAP). Mandatory program spending is typically ongoing, continuing from year to year, unless Congress changes the law. This fact sheet lays out key details legislators and the public should know about discretionary spending.

  • Discretionary spending accounts for less than one third of all federal spending, that’s $1.7 trillion in 2023 or 6.6 percent of gross domestic product (GDP).

    • Discretionary spending will reach $2.4 trillion or 6 percent of GDP by 2033 according to projections by the Congressional Budget Office (CBO).

    • Discretionary spending will consume one quarter of the U.S. government’s projected $9.8 trillion total budget in 2033.

    • Discretionary spending is declining as a share of the overall budget, primarily due to the growth of major mandatory entitlement spending like Social Security and Medicare.

    • Between 1973 and 2023, discretionary spending’s budgetary share fell from 53 percent to 28 percent of total federal spending.

    • Compared to the size of the economy, discretionary spending is declining from 9.6 percent of GDP in 1973 to 6 percent of the GDP in 2023.

    • For every American household, the United States will spend about $13,000 in discretionary spending in 2023.

  • Discretionary spending can be divided into two main categories: defense and nondefense.

    • Discretionary spending is allocated as budget authority and disbursed as outlays. Timing differences explain discrepancies between annual budget authority and discretionary outlays or spending.

    • The federal government will spend $792 billion on defense discretionary programs in 2023.

    • Nondefense includes everything from transportation to education to agriculture. See the graph below for a breakdown of nondefense spending in fiscal year 2023.

    • The United States will spend $919 billion on nondefense discretionary programs in 2023.

    • Since 1973, nondefense discretionary spending has grown 75 percent faster than defense.

    • As a share of the United States’ economic output, defense spending has fallen from 9 percent of GDP in 1962 to 3 percent of GDP in 2023. Nondefense spending has grown from 3 percent of GDP to 4 percent of GDP over the same period.

    • By 2033, the United States is projected to spend $1.1 trillion on defense and $1.3 trillion on nondefense.

    • Congress also distributes added funds through supplemental appropriations. Supplemental appropriations are in addition to regular discretionary appropriations and distinct from mandatory spending. Supplemental appropriations are not subject to discretionary spending limits.

    • Over the last five years, Congress has spent $1 trillion through supplemental discretionary appropriations. If mandatory spending provisions were included, pandemic‐​related legislation cost many trillions more.

  • Discretionary spending limits encourage budgetary discipline.

    • The Budget Control Act of 2011 capped discretionary spending between 2012 and 2021.

    • For the first six years, discretionary spending declined and then remained flat in real terms.

    • Since then, discretionary spending has risen significantly, largely due to emergency spending in response to COVID-19 which was not subject to the top‐​line spending cap.

    • The Fiscal Responsibility Act limits discretionary spending for two years, at $1,590 billion for FY24 and $1,606 billion for FY25.
    • Because the discretionary budget is annual, funding priorities are more sensitive to recent political trends and national events. Interest groups and matters that catch constituents’ attention influence short‐​term legislative outcomes.

    • Republican conferences in the House and Senate banned parochial funding requests (earmarks or so‐​called congressionally directed spending) in early 2011.

    • Earmarks bypass merit‐​based formulas and competitive award processes, in favor of politically directed spending and are more likely to lead to a misallocation of resources. Rent seeking from interest groups also consumes legislators’ time and taxpayer dollars.

    • Earmark spending increased from $9 billion in 2022 to $15 billion in 2023.

Further reading:

Download a printable PDF version of this fact sheet here.

Fast Facts about Medicare and Social Security

https://www.cato.org/blog/fast-facts-about-medicare-social-security

Romina Boccia and Dominik Lett

Medicare and Social Security are the two largest federal government programs that are also growing the fastest. They are fiscally unsustainable as currently structured. Medicare consists of four parts which provide inpatient care (Part A), outpatient care (Part B), prescription drug coverage (Part D), and subsidies for seniors to choose alternative health insurance providers through Medicare Advantage (Part C). Social Security consists of Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). For the purposes of this fact sheet, Social Security will refer to OASI only. This fact sheet lays out key fiscal details legislators and the public should know about Medicare and Social Security to help them examine the unsustainability of these massive federal entitlement programs.

  • Medicare is the second largest federal government program, spending $1 trillion in 2023, or an amount equal to 3.8 percent of gross domestic product (GDP).

    • Medicare spending will double to $2 trillion or 5.1 percent of GDP by 2033. That’s twice what the U.S. government will spend on defense that year.
    • 65 million Americans receive Medicare at an average cost for taxpayers of $12,100 per beneficiary.
    • Studies estimate that one-third of Medicare spending provides no value: it makes patients no healthier or happier.
    • Studies have found Medicare increased total hospital spending by 37 percent over five years.
  • Medicare is already contributing to federal deficits and facing increasing budget shortfalls.

    • Medicare will be responsible for $446 billion in deficits, or one third of the entire 2023 federal budget deficit of 5.3 percent of GDP.
    • Medicare’s trust funds hold no real assets and only Medicare Part A is funded by payroll taxes. The majority (64 percent) of Medicare spending is financed by other taxes and borrowing.
    • When the Medicare Hospital Insurance (Part A) trust fund ledger goes to 0 by 2031, inpatient providers will face a reimbursement cut of 11 percent.
    • $48.4 trillion or 60 percent of the $78.4 trillion in 75‐​year unfunded obligations for Medicare and Social Security is due to spending on Medicare Parts B and D, with taxpayers on the hook for the difference between what beneficiaries pay in premiums and the benefits they receive.
    • If Congress raised payroll taxes to cover Medicare Part A’s 75-year unfunded obligation, a median wage earner ($44,000/year) would face an additional $700 in annual taxes.
  • Social Security is the single largest federal government program, spending $1.2 trillion in 2023 or 4.7 percent of GDP.

    • Social Security spending will double to $2.1 trillion or 5.4 percent of GDP by 2034. By then, the government will spend more on Social Security annually than on the entire defense and nondefense discretionary budget.
    • 57.5 million Americans receive Social Security.
    • The average monthly benefit for an individual is $1,747.
    • The maximum monthly benefit for an individual is $4,555.
    • In 2022, Social Security raised all current benefits by 8.7% to adjust for inflation, the largest single benefit increase in 40 years.
    • Since the program’s inception, life expectancy at birth has increased by nearly 20 years. Yet, Social Security’s eligibility age has only increased by 2 years.
  • Social Security is already contributing to federal deficits and facing increasing budget shortfalls.

    • Social Security is responsible for $157 billion in deficits in 2023, or 11 percent of the entire annual federal budget deficit this year.
    • Social Security’s trust fund is a liability, not an asset. Social Security holds no real assets beyond IOUs against future U.S. taxpayers. Those IOUs, which amount to $2.8 trillion, are part of the $31 trillion gross national debt.
    • When the Social Security trust fund ledger depletes by 2033 all beneficiaries regardless of age, income, or need will face a 20 percent benefit cut.
    • Social Security’s 75-year unfunded obligation—the difference between the present value of payroll tax revenues and spending— is $23 trillion, comparable in size to nearly the entire publicly held debt of $24.7 trillion in 2023 ($140,000 for every wage earner).
    • If Congress raised the payroll tax to cover the 75-year Social Security unfunded obligation, median wage earners ($44,000/year) would have to pay an additional $1,600 in payroll taxes.

Further reading:

  • Cato Handbook for Policymakers: Medicare “In dollar terms, Medicare is the largest purchaser of medical care goods and services in the world—in part because it pays excessive prices to health care providers and wastes hundreds of billions of dollars on medical care that provides no value to enrollees.”
  • Medicare and Social Security Are Responsible for 95 Percent of U.S. Unfunded Obligations “Over the next 75 years, U.S. taxpayers face nearly $80 trillion in long‐term unfunded obligations. What’s more, 95 percent of this unfunded obligation is driven by only two federal government programs: Medicare and Social Security…Adopting sensible reforms to old age entitlement programs is both necessary and urgent.”
  • Overdue for Change: Social Security at Age 87 “Social Security provides income support to older Americans, regardless of need. The median net worth of working Americans aged 35–44 was $91,300 in 2019. Meanwhile median net worth among those 65 and older was nearly three times that. To the extent that the government provides income subsidies to retirees, it should focus them on those retirees with limited means to support themselves.”
  • Social Security’s COLA Increase Is Based on an Outdated Inflation Measure “Using [the more accurate] chained CPI to determine future Social Security cost‐​of‐​living adjustments would extend benefits for longer without raising taxes on working Americans, while protecting beneficiaries from a real loss in purchasing power based on inflation.”

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