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Long-Term Issues

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Underlying data:download

Both the administration and the CBO have projected that, under specific assumptions, current budget deficits will diminish and then disappear altogether over the next decade. In the longer run, however, retirement of the baby boom generation will cause spending on Medicare and Social Security to soar far above the payroll taxes that support it. Under current projections, Medicare spending will exceed revenues from its dedicated tax by 2010, and its trust fund will be exhausted by 2019. Social Security is in better financial shape but will reach the same landmarks in 2017 and 2042, respectively.

Fixing the problems of entitlements is a daunting task. Attempts in recent years to reform Social Security and put it on a sounder financial footing have foundered amid political disagreement about how radically the system should be redesigned. Medicare faces more dire financial straits and presents much more difficult issues of potentially rationing health care. Yet without action in the next few years, the problems will become even more imminent and more difficult to solve.

Long-run projections show entitlement spending growing much faster revenues and eventually claiming virtually all of the federal budget (see CBO analysis). Even in the short run when spending on Medicare exceeds its dedicated revenue stream but has not yet exhausted its trust fund, stress on the rest of the budget will grow as funds shift away from discretionary spending to make up the shortfall in revenues collected explicitly to pay the health costs of the elderly and disabled. Over time that situation will worsen as Social Security also claims general revenues to pay retirement benefits. The sooner that action is taken on these difficult problems, the less painful will be the adjustments needed to accommodate the changes.


Facts

bullet  Long Run Growth of Entitlement Spending

bullet  Long Run Growth of Medicare and Medicaid Spending

bullet  Long Run Growth of Social Security (Retirement and Disability) Spending

bullet  Long-Run Spending Versus Revenues for Social Security and Medicare

bullet  CBO's Six Scenarios for Long-Run Growth in Federal Spending

bullet  Long-Run Demographic Change and Pressure on the Federal Budget


Publications

bullet Sources of the Long-Term Fiscal Gap: How spending patterns and tax policy affect the long-run shortfall of revenues relative to government spending under alternative measures.

bullet Domestic Entitlement Programs: Cuts in entitlement spending on income support programs will be painful, but delaying them will only worsen the situation.

bullet Working to Fix Our Fiscal Woes: Working longer would not only raise the amount of private savings available to support retirement but also ease the nation's fiscal problems.

bullet View more selected publications on the Federal Budget.