Federal spending on Social Security and Medicare is projected to rise dramatically over the next decade, far outpacing revenues and the economy on the whole while putting new pressure on Congress to address accelerated threats of insolvency, according to new estimates from the Congressional Budget Office (CBO).
The increase is driven by a variety of factors, including Social Security’s new cost-of-living adjustment, the rising cost of medical services under Medicare and greater participation rates in both programs, as the last of the baby boomers become eligible for retirement benefits.
The result, the CBO estimates, is that combined spending on Social Security and Medicare will almost double by 2033, when required funding for the two programs will approach $4 trillion, representing more than 10 percent of the country’s total economic output.
Another consequence, said CBO Director Phillip Swagel, is that Social Security now faces a funding shortfall in 2032 — two years sooner than the previous projection.
The numbers are sure to animate the already contentious debate over federal spending, the national debt and the future of the popular entitlement programs, which have taken a center stage in the early months of this year as President Biden and Speaker Kevin McCarthy (R-Calif.) begin high-stakes negotiations over raising the nation’s debt limit.
McCarthy, while demanding spending cuts as a part of those talks, has said reductions to Social Security and Medicare are “off the table.” And Biden — making similar vows to protect the popular senior benefits — appears ready to hold the Speaker to his word.
Yet Medicare is projected to experience a funding shortfall in 2028, and Social Security is forecast to follow in 2032, according to Swagel. And lawmakers in both parties — liberals and conservatives alike — are warning that the longer Congress waits to address those projected deficiencies, the tougher the remedy will become.
“Every year it gets more expensive and harder to do,” Rep. John Larson (D-Conn.), a strong Social Security advocate, said Tuesday, before the CBO’s new report was issued.
Yet if the parties agree that Congress must intervene to shore up entitlement finances, they’re at sharp odds over how to go about doing it.
Democrats such as Biden and Larson have floated a series of tax hikes on the wealthiest taxpayers to cover the shortfalls, including a proposal to apply the Social Security tax — which is currently capped at earnings up to $160,200 — to much higher incomes.
Republicans, by contrast, are opposed to any tax hikes, proposing instead to adopt changes such as raising the eligibility age for receiving benefits under Social Security and Medicare while scaling back benefits for wealthier seniors.
The CBO has added some urgency to the debate. Not only has Social Security’s solvency timeline been accelerated, but the new report warns that heightened spending on Social Security, Medicare and other mandatory programs over the next decade — combined with rising interest payments on the federal debt — will put a greater squeeze on the discretionary programs that occupy the remainder of the budget.
Social Security spending will almost double, from $1.2 trillion in fiscal 2022 to almost $2.4 trillion in 2033, the CBO estimated. As a percentage of gross domestic product (GDP), it will grow from 4.8 percent to 6 percent over that span. The jump begins immediately, with a $123 billion increase in fiscal 2023, a 10 percent spike, largely due to the large, 8.7 percent cost-of-living increase for Social Security beneficiaries that took effect last month.
Medicare spending will more than double over the same span, from $710 billion in the last fiscal year to more than $1.6 trillion in 2033, when it will represent 4.1 percent of GDP, the CBO reported.
Spending on other mandatory health care programs, including Medicaid, the Children’s Health Insurance Program and ObamaCare subsidies, will also rise significantly, from $695 billion in 2022 to $1 trillion in 2033, the CBO said.
All told, the CBO found, the federal debt — currently capped at $31.4 trillion — is on pace to balloon to roughly $50 trillion a decade from now, as annual deficits are projected to rise from $1.4 trillion this fiscal year to $2.9 trillion in 2033. And budget watchdogs wasted no time on Wednesday pressing Congress to bring those numbers down, with some calling for immediate reforms to Social Security and Medicare as part of this year’s coming budget debates.
“Today’s CBO report should provide an important dose of reality for politicians making promises they can’t afford to keep,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement.