More than 4/5 of Spending Growth Will Come from Social Security, Health, & Interest

From Fiscal Year (FY) 2025 to 2035, nominal spending will grow by 53 percent according to the latest Congressional Budget Office (CBO) baseline. About 83 percent of this increase can be explained by only three parts of the federal budget: Social Security, health care, and net interest on the national debt.

CBO projects that the federal government will spend $7.0 trillion in FY 2025, with the largest expenditures going towards Social Security, net interest, and Medicare, in that order. By 2035, that spending will grow to $10.7 trillion and be largely driven by these three items along with other federal health programs.

Spending on Social Security, the largest line item in the budget consisting of the combined retirement and disability insurance programs, will be responsible for 28 percent of the spending increase through 2035.

Federal health care programs, which largely consist of Medicare, Medicaid, Affordable Care Act subsidies, and the Children’s Health Insurance Program, will grow by 32 percent, with Medicare accounting for two-thirds, or 22 percent, of that growth. And net interest costs, which recently surpassed spending on Medicare and defense to become the second-largest line item in the budget, make up 22 percent of spending growth between FY 2025 and 2035, nearly doubling from $950 billion to $1.8 trillion on a nominal basis.

All other spending combined – including defense and nondefense discretionary spending as well as other mandatory spending – will account for the remaining 17 percent of growth.

As a share of Gross Domestic Product (GDP), total spending will grow from 23.3 percent in FY 2025 to 24.4 percent in 2035. Social Security will grow 0.8 percentage points of GDP, from 5.2 percent to 6.0 percent, while federal health programs will grow 0.9 percentage points of GDP, from 5.8 percent to 6.7 percent – all of which is driven by Medicare. Net interest will also grow 0.9 percentage points of GDP, from 3.2 percent to 4.1 percent, which will be its largest amount ever recorded.

All other spending will decrease as a share of the economy, including defense and nondefense discretionary spending as well as spending on other mandatory programs.

The national debt will remain on an unsustainable upward course in large part due to the projected spending growth over the next decade along with the inability of revenue to keep up. Policymakers will need to take a hard look at both sides of the ledger to put the debt on a downward sustainable path.